A Look at Custodied ETH
On 23rd November, prominent blockchain researcher Hasu made the following statement, sparking length debates on Crypto Twitter.
One definition of self-custodying ETH refers to storing ETH on your own addresses on-chain instead of trusting a third party to secure it for you. While Etherscan doesn’t have a view of the Bitcoin blockchain, we do tag and label a large number of the top custodial addresses in Ethereum: exchanges.
Here we examine the ETH balance or Total Value Locked (TVL) on these exchanges as well as their inflows and outflows.
Custodied TVL
The total balance held on more than 300 exchange addresses sums up to 18 million ETH, equaling $77 billion.
This amounts to 15.5% percent of all ETH supply. A further 1.7% of all ETH is staked using exchanges in the Beacon (Eth2) deposit contract.
Breaking down the balance stored on each exchange, we find that Coinbase has by far the most amount of ETH, topping the chart with $29 billion. In second place (at almost a third of the amount) is Binance. Kraken, Bitfinex and Gemini round off the top 5.
Note: numbers shown here are only based on addresses identified by Etherscan or Viewbase. If you’d like to suggest other exchange addresses, please let us know!
As a point of comparison, the 2 non-custodial addresses with the largest amounts of ETH — the Beacon deposit contract and Wrapped ETH token — hold $36 billion and $31 billion respectively.
Another angle to examine TVL is by comparing it with exchange volume. A glance at CoinMarketCap highlights some interesting data. While Crypto.com and KuCoin are 11th and 12th in terms of TVL, they feature higher up in the 24-hour traded volume list for ETH at 3rd and 7th.
Comparing the ratio of TVL with top-20 volume shows that Crypto.com and KuCoin trades at 227% and 173% of TVL daily. At the other extreme, Gemini (1%), Bitfinex (2%), Kraken (3%) and Coinbase (4%) are trading barely a tiny slice of their ETH held.
Custodied Inflow & Outflow
While Coinbase has the most ETH, a lot more of their holdings are held in cold or inactive wallets. A look at the exchanges’ deposits and withdrawals shows Binance leading by far. Coinbase, Kraken, Bitfinex, Huobi, Gemini and FTX also contribute to a large chunk of transaction volume.
A popular heuristic used by traders to predict price movements (and chart providers looking to sell their services) is to look at deposits and withdrawals to and from exchanges. Large deposits signal an upcoming dump (as people send their ETH to an exchange to be sold) while the opposite applies for withdrawals. How do the numbers match up to this heuristic?
Daily exchange inflows and outflows appear inconclusive. An exception is the period in late May when the crash in price following ETH’s then-all time high correlated strongly with massive deposits into exchanges.
A comprehensive analysis of custodial addresses may require much more addresses to be included ranging from miners to exchange deposit addresses, while the term itself may need better clarification (should it include smart contracts that have admin keys or trading funds?). Our analysis is but one step in the search for an answer.
Do you have an address to add or definition to suggest? Let us know in the comments!
