The first quarter of 2021 has officially ended, and by most measures, Ethereum had an outstanding quarter.  

The native cryptocurrency of the network, ether, outperformed bitcoin and traditional macro assets by a wide margin in terms of price, appreciating 156% during the quarter. Several ETH investment products were also launched, paving the way for greater institutional involvement in ether markets. 

The quarter also contained several milestones related to Ethereum’s technology roadmap and the progress of the Ethereum 2.0 upgrade. 

In the first quarter, the total value locked in Ethereum 2.0 more than doubled, rising from 1.5 million ETH staked to 3.6 million by the end of the period. 

As the number of users depositing their ether in 32 ETH increments grew during the quarter, so did the number of active validators securing the network. The number of active validators crossed 100,000 by Feb. 27, and has since passed 118,000 as of April 12. 

In dollar terms, total value locked in Eth 2.0 surpassed $8 billion in the beginning of April, just as ETH price broke past a $2,000 per unit valuation in the markets. This makes the Eth 2.0 network the fifth-largest proof-of-stake (PoS) network by staked value.

In the span of roughly four months, Eth 2.0 has grown to be a sizable competitor to other more established and long-running PoS networks such as Tezos and Cardano. However, one important difference about Eth 2.0 compared with other PoS networks is that the vast majority of ETH supply is not used for staking. 

Only roughly 3% of ether supply has been locked in Eth 2.0 as of April 12. Compared with other PoS protocols, which boast nearly 80% of their coin supply staked, Eth 2.0 ranks the lowest by a wide margin. 

Why?

Because the majority of new ether supply is issued on a parallel Ethereum blockchain secured by miners and a proof-of-work consensus algorithm. Moreover, Ethereum has a thriving decentralized application (dapp) ecosystem that competes with the use case for ether as a staking asset. 

For other PoS protocols, native tokens are used in large part by validators to earn rewards on the network. For Ethereum and Ethereum 2.0, ether is put to work in a number of different ways by users, dapp developers and, more recently, institutional investors. 

There were several new use cases for ether that attracted the attention of deep-pocketed investors and institutions in Q1. 

First on the list is ether as a medium of payment for non-fungible tokens (NFTs). Buying NFTs with ETH has always been possible on Ethereum and had attracted mainstream attention to some extent already through the game CryptoKitties back in 2017. But the recent hype around digital collectibles seen in the first quarter of this year has reached new extremes. 

Writers, artists, athletes, businesses and even robots have issued digital art pieces on Ethereum over the past three months. While the sheer number of people engaging with this piece of technology is significant, what sets this frenzy for NFTs apart from the 2017 CryptoKitties craze is the participation and endorsement from high-profile individuals and organizations. 

One of the world’s leading auction houses, Christie’s, hosted the sale of an NFT for $69 million on March 11, and accepted payment for the artwork in ether. One day after this auction, New York-based news agency the Associated Press sold NFT artwork for $180,000 worth of ether. 

Trading volume for NFTs overall has skyrocketed by over 25 times since December. 

Apart from the growing use case for ether as a medium of payment for NFTs, we also saw the early beginnings of what could become an industry trend: ETH as a reserve asset for corporations.

Software firm Meitu reportedly bought $22 million worth of the crypto asset to hold on its corporate balance sheet on March 7. A few weeks before that, digital asset merchant bank Galaxy Digital launched an Ethereum fund for institutional investors. It raised $32 million by March from deep-pocketed clientele seeking to gain exposure to ETH without physically holding the asset in custody. 

Finally, the last use case I want to highlight for ETH that caught the attention of institutions this past quarter is staking. As we saw in the Pulse Check, over $8 blllion worth of ETH is currently locked in Ethereum 2.0. That's compared with $2.4 billion in the beginning of January. In the past quarter, validators earned up to 0.25 ETH per month, worth roughly $570 at time of writing. 

How do we know any of this has sparked the attention of some institutional and accredited investors? Well, because on March 25, an investment product was launched by staking-as-a-service provider Staked targeted just toward them. 

The new Staked ETH Trust gives investors direct exposure to ETH and the ability to earn roughly 8% interest annually from staking rewards on their investment. The minimum investment amount is $25,000 with a 12-month lockup period. 

According to Tim Ogilvie, the CEO of Staked, products like the Staked ETH Trust are front-running the institutional interest that has started to naturally spill over to Ethereum and Ethereum 2.0 in the last few months. 

“As you see a lot of institutional interest in bitcoin, I think a very natural next step is how does Ethereum work? There are a bunch of investors who believe that the risk/return on Ethereum is significantly higher than that on Bitcoin,” Ogilvie told CoinDesk in an interview.

The first quarter highlighted several possible use cases for ether. ETH could be held as speculative investment, put to work in a decentralized finance (DeFi) application, used to buy a non-fungible token, staked on Ethereum 2.0 for interest or purchased as a corporate balance sheet reserve asset. Any of these use cases has the potential to break out as the dominant one for Ethereum and its native token ether in the coming months. 

Which are you betting on to take the lead this year? 

Feel free to reply any time and email research@coindesk.com with your thoughts, comments or queries about today’s newsletter. Between reads, chat with us on Twitter.

Valid Points incorporates information and data directly from CoinDesk’s own Eth 2.0 validator node in weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post. 

You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is: 

0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb. 

Search for it on any Eth 2.0 block explorer site!

I’ll be extending today’s conversation on Ethereum 2.0 with Consensys’ Ben Edgington in a CoinDesk podcast series called “Mapping Out Eth 2.0.”  New episodes air every Thursday. Listen and subscribe through the CoinDesk podcast feed on Apple Podcasts, Spotify, Pocketcasts, Google Podcasts, Castbox, Stitcher, RadioPublica, IHeartRadio or RSS.