Where has the total circulation of over 120 million ETH gone?

Author: Babywhale, Foresight News

The current total circulation of Ethereum is approximately 1.2 million more than 233,000, with this excess scattered across various corners of the Web3 world, including exchanges, DeFi, cross-chain bridges, Layer 2, non-EVM ecosystems, and many lying in wallets that hackers are afraid to move due to fear of being tracked.

We are bombarded with various data every day, with Ethereum on some new L2 reaching new highs, and exchange inventories hitting new lows. But has anyone considered how these Ethereums are distributed and where they prefer to go?

A user on platform X, obsessed with Ethereum and named Eth Wave (@True Wave Break), has done a somewhat incomplete statistic that cannot be said to be revealing too much. Although this statistic overlooks the whereabouts of many W ETH and ETH that has escaped the EVM ecosystem, it broadly outlines a picture of Ethereum distribution:

There are several interesting data points in this chart that deserve individual discussion.

ETH on L2 Accounts for Less Than 2% of Total Supply

According to the data in the chart, ETH on all L2s accounts for only about 1.66% of the total ETH circulation, approximately 1.992 million tokens, which, based on the Ethereum price at the time of writing, has a total value of $3.223 billion, accounting for 30.87% of the L2 TVL of $10.44 billion.

The ranking of L2s based on ETH supply in the chart is almost consistent with the ranking based on TVL in L2 BEAT. Aside from the two giants, Arbitrum and OP Mainnet, the recent development speed of Base has indeed caught many off guard, with its TVL surpassing that of zkSync Era and Starknet, which launched earlier.

However, even with the impressive performance of L2s, a comparison reveals that the ETH supply across all L2s is only slightly higher than the Bitfinex cold wallet supply, and is even only about half of Binance's cold wallet supply.

From this, we can conclude that as a significant alternative to Ethereum that reduces transaction costs, L2s currently show no signs of shaking Ethereum's position. On one hand, this may be due to the relatively low user base that can skillfully transfer assets across various chains; on the other hand, it may also be because there are still many irreplaceable applications on the mainnet.

CEX Remains the Main Battlefield for ETH Liquidity

According to the data listed in the chart, the identified exchange ETH supply exceeds 7%. With the addition of small exchanges around the world and potential unidentified exchange addresses, although the ETH supply in centralized exchanges has been on a downward trend in recent years, it may still be close to or even exceed 10%.

This means that CEX remains the primary gathering place for ETH liquidity, and the so-called "liquidity shortage" we observe in the market may simply reflect a decrease in users' willingness to trade frequently, with most likely many holding back.

Additionally, institutions like Robinhood, which are not cryptocurrency exchanges but have cryptocurrency trading operations, should not be overlooked. For example, Grayscale, which is not mentioned in the chart, has been identified by blockchain data analysis platform Arkham as holding 3.03 million ETH in its Ethereum fund, accounting for over 2.5% of the total circulation.

The Chips in the Hands of Hackers Cannot Be Ignored

The chart also lists some of the holdings of hackers, such as those who attacked the Polkadot multi-signature wallet, Mixin, and Gatecoin, as well as the notorious North Korean hacker group Lazarus Group, which is not listed. However, the unlisted may have deposited the stolen assets into mixers, including Tornado.Cash, or stored them in various addresses, making it difficult to identify them all in a short time.

Staked Ethereum

Staked Ethereum has already accounted for over 25% of the total Ethereum circulation, and this number may continue to rise in the foreseeable future. Among the staked ETH, one-third is deposited in liquid staking protocols, with over 86% of this one-third in Lido. In the staking field, while centralized exchanges have also taken a share and launched liquid staking tokens (LST), their popularity currently lags far behind decentralized protocols, with staking volumes only half that of LSD protocols.

Liquid staking is a field that may be far more complex than it appears, not merely about obtaining tokens that represent staked shares in equal amounts after staking. How to be more decentralized to mitigate risks, how to reduce the amount of ETH users deposit, and how to use LST to maintain the security of other networks (re-staking), among other aspects, are all areas worth exploring in depth.

On the other hand, liquid staking is essentially a leveraged behavior. Currently, the use of LST as collateral for lending and many LSD protocols issuing decentralized stablecoins through LST further amplifies leverage. In the future, if the scale becomes large enough and extreme market conditions arise again, whether there will be sufficient liquidity to liquidate these assets is also a question we need to prepare for.

As the author himself stated, this chart is not perfect, as it does not account for exchanges, WETH on L2, DEX, etc. Additionally, in the DeFi space, the chart only shows the proportion of Compound's cETH and DAI (MakerDAO) minted through collateralized WETH, while other major DeFi protocols such as Aave, Curve, and Uniswap are not included. The author indicates that he will continue to improve this chart in the future and hopes that a more refined chart will reveal more valuable information.