The pace at which Cardano is improving the technology of the blockchain is quite incredible, and so I want to go over that, plus how that ties in to the current valuation and the valuation of ADA throughout this bear market because we have to compare and contrast Cardano with other ecosystems. They are also advancing and scaling up their blockchains. As we know, the Vasil hard fork is coming in the next few weeks, and that is a massive upgrade for scalability. And towards the end, I’m going to look at some of the possible applications that will add users.
Technology is going to congregate around essentially low fees and being easy to use, and it’s going to get easier and cheaper as time goes on. The things that are going to differentiate blockchains are how good their applications are and how many people are using their blockchain. That’s what’s going to create value over the long term, not technology, because technology is going to get better with every change. So what is attracting users?
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Let’s look at how many users are on Cardano now and how things are actually growing. You can see that the number of ADA wallets is going in the right direction, up to around three and a half million now. So it’s growing very fast and you can see the number of transactions and payments per day.
I’ll just get rid of myself down in the bottom right, around 80,000 to 100,000 transactions a day, but payments are the thing to look for really, around 200,000, maybe, 250,000, something like that. Cardano is an e-utxo blockchain, meaning that one payment or one transaction can have multiple payments in it because you can press send and that one send can have five, six, seven, or ten different payments going in to different addresses. So that’s payments, but obviously Cardano is a smart contract chain as well, which is why they have to upgrade it to have more throughput. You can see that there’s nothing wrong with the average blockchain load right now.
So what I want to keep an eye on right now. Here is the amount of those daily transactions, so we’re going to have a look at that daily transaction, and what you can see here is that we’re actually going to go back to a previous date because you really need to see how this kind of changes over time, right? So the total number of transactions is going in the right direction, but what we can see here are daily active addresses during this bear market really coming down.
So it’s important to compare and contrast this to other chains that are, you know, the competition for Cardano, so we’re looking at maybe a 100,000 daily active users right now, around that number. And it’s come down from the peak, which is, you know, during the bull market, you just have people speculating and opening up new wallets and buying jpegs and stuff. So that’s come down to around 80,000, 90,000, or 100,000 active addresses per day for a top ten blockchain.
It’s good to compare that to the competition that Cardano is putting itself up against. For example, ethereum and Polygon, which are really amongst the most, used blockchain networks right now. So you can see ether is still around.
Let’s call it 450,000 daily active addresses. So you know, multiples of Cardano, and it’s actually not gone down as much as Cardano now. The reason for this is that Ethereum just has a much more mature ecosystem full of applications that have yet to launch on Cardano but are doing so in the second half of this year. Depending on what part of the growth phase that you want to be in, ethereum just has more use cases right now, but then we’re looking at polygon matic as well, around 250,000 a day. So Cardano is, from an active user standpoint, below these chains and polygons. This is the Polygon proof of stake chain, with around 250,000 daily active users. It is something like arbitrary, which is another layer 2 network on Ethereum.
So, that’s being ported over to Uniswap and RV, so some big applications that are using this, you’re looking at around 100,000 users a day for that. So Cardano is up there, but certainly it just doesn’t have as many users, and there are reasons. For example, the fact that the only things you can do on Cardano right now are buys some jpegs and exchanges some tokens. But a lot of the lending protocols and the kind of yield that you can get from different apps haven’t launched yet. But that will be launched in the second half of this year.
The reason why I look at daily active users and the growth in them is because, in my opinion, that’s really the king of all metrics. Technology is great. But if there aren’t any users, the blockchain is going to be worthless because, at the end of the day, if we just look at bitcoin as being the only real store of value here, then everything else is essentially worthless, especially the smart contract chains. They’re a platform that charges fees to users and then takes those fees and passes them back to people that are investing as staking rewards.
So the yield that you get is essentially going to be a proxy for the valuation of that token, right? Because what you need is more demand for that token over time and fees to be paid in it and then passed back to you as an investor who is staking your coins. Other than that, there’s no real fundamental value in a store of value asset because bitcoin exists and so it will always have that crown. So what you’re looking at is that we need more users and use cases, and we need more people to pay fees on the blockchain. You’re seeing a lot of interest in that as they move over and start bringing staking rewards back to investors and using some fees to buy back tokens to reduce the issuance down to at least near zero or even negative now. Cardano is charging fees again.
So what use cases are there? You need fees and you need that yield so that investors can give some sort of fundamental value to these things. Is there a value as well as a currency asset? Yes, there it is. These aren’t just equities, but there is a valuation there that people put their money in as a kind of base layer token and security for the network. So there is value there in that, but I think over time, we’re talking decades here, the ones that charge the most in fees or are able to charge the most in fees and pass some of that back to investors should from a logical standpoint, retain more value and gain more value over time. So that’s what I’m looking at now.
One of the things that you’re going to want to do as a smart contract chain is basically make it easy for people to use it. One of the upgrades that we’re seeing from input output recently is something called babel fees, or babel fees, and this is a way to pay fees in a token that isn’t ADA.
So just to clarify here, Cardano ADA will always and forever be the base asset that fees are paid in, but users further up the stack might not want to have any ADA. They might not want to buy ADA to invest in it. They may be unhappy with the volatility of that asset, and so for many reasons. And they may just not have any ADA in their wallet. For example, if there’s a game that someone’s playing and they download it and they don’t really even know that it’s on Cardano, then how can they pay fees? Well, they’re going to want to pay fees in the assets that they have in that application now.
In this example from IoHK, they’re using an in-game token and actually NFTs, which come in the form of swords in this example, and then game coins.
Now what this essentially does is create a fee market where someone can just say I’m going to pay the fee in some other type of asset and then this works through a system of other users who are happy to accept that value and also validators, who what essentially they do is put up the ADA as a fee and then get the other asset that has value. And I’m assuming that there’s going to be some decentralized marketplace where these assets are actually valued.
So, you can take that value and sell it or trade it for the amount of ADA. So, really, fees are always paid in ADA, but what this mechanism is going to do is allow people further up the stack to basically pay in any other value that has an open market. That’s clever, and it’s obviously going to kind of take ADA out of the system, which is actually a benefit, I think, because essentially, it’s up the stack. We want people to use Cardano without really even knowing that they’re using Cardano, and that’s going to make things much more seamless and help integrate the blockchain a lot more.
Something else the ecosystem is working on right now is the Orbis project. Orbis is building layer 2 on top of Cardano. If you’re part of the crypto investor course, I’ve gone over this a lot, which is how you know blockchains are changing. So, go ahead and check that out. It has up-to-date updates about what blockchains are actually doing and the outlook for them. And Ethereum’s doing this very thing, which is taking away the monolithic type chain and moving into modular chains. These are kind of buzzwords that are happening, but essentially, you want to split up different parts of the blockchain.
So you have data availability and consensus mechanisms that really have to be one separate thing. You have settlement layers and then you have execution layers on top, which is layer two. Now all these projects are trying to build a layer two eventually on top of Cadano, which really is going to reduce fees rather than using the base layer.
Obviously, it’s expected that Cardano is going to grow to be large enough where you need a layer 2 network which batches transactions up and then sends them all down to basically reduce feats. Now these are all the same things that we’re looking at on Ethereum in terms of data availability and roll-ups and everything ZK roll-ups as well. So this is coming to Cardano as well. As you can see, all of this technology has just got to converge into everything that’s going to be cheap, effective, and efficient in the end.
So what is the actual value of a blockchain? It’s the applications. So definitely check out Orbis because that’s what they’re building on top of Cadano. So Cardano has enough scale. It has plenty of scale. As you can see, only the 50 scale is being used right now. So there’s plenty of scale right here, but what we really want to look for is what applications are being built because that’s going to drive more users. For me, users really are the value.
Without users, how can the base asset have any value? So, one of the projects that have recently come up with something that they’re building is Liquid X. I don’t have any links to this project, but this is an interesting project, so think of Ave on Ethereum. So it’s a lending protocol where people can put their aid and then borrow dollars against it or that it will be their own token, which is legal. It’s going to be a stable coin. So what you can see here is that loans are denominated in LQUSD, which is a USD pegged stable coin, and they are required to have a minimum collateral value of 110%. So think about it. People that have Cardano ADA and they want to borrow dollars against it. So they put their dollars onto the system and then, obviously, pay a fee to borrow dollars.
Now something that’s slightly irritating here is that they say that users are able to generate interest-free over collateralized loans. Interest-free is a very frustrating term to see because nothing is interest-free right now on this planet is interest-free. But they’re saying that it’s interest-free if you actually read through it. Essentially, what they’re doing is just charging you a fee, an upfront fee per time that you interact, rather than an interest rate that is variable over the life of your loan.
So it’s a different situation. I don’t think they should be calling it interest-free because that’s not what it is. The way that this system works is that when you actually go and put the collateral on and borrow the funds, it will charge you a flat fee representative of how the supply and demand on that application works at the time. So I don’t think they should be calling this interest free because it’s just that it’s not correct. Everyone has to pay a fee to borrow money, whether it’s paid in an upfront fee when you actually deposit and withdraw or whether it’s a variable interest over that time. It’s still a fee that you have to pay.
However, there is now only one application. I’m not saying this will work or not or how successful it will be. But these really are the things that are going to drive value for me. Cardano is actually used by people. You know this because you can see this on Ethereum and Polygon as well, which are integrated with the biggest applications like Uniswap and RV. Users doing things creates value, and just coming up with technology is the basis for that value, of course, but you need the users there to actually follow through, and that creates more demand for ADA in general.
There are a lot of applications that are waiting for the Vasil hard fork to actually launch, and that’s going to happen in the next few weeks.
[This article is a transcription of a video made by MoneyZG]
[Original video: https://youtu.be/hUXNFsKXI3A]