Check out the dapp industry highlights of May 2022
The blockchain industry shows off how resilient it has become amid a crypto winter accentuated by the debacle of Terra. NFTs and games keep signs of evolution and maturity, while DeFi seemingly starts its way to recovery.
The collapse of the former second-largest DeFi ecosystem – Terra and the crash of the associated LUNA token and the UST stablecoin, have accentuated the bear season that still affects the crypto landscape.
Bitcoin dragged the entire crypto market down closing below $30,000 for the first time since December 2020. Several altcoins are up to 90% down from their peak reached in November last year.
Dapp activity has hit its lowest point this year as 2.22 million daily Unique Active Wallets (UAW) connected to blockchain dapps in May. This number represents a 5% decrease month-over-month (MoM), although still 32% higher than in May 2021.
Yet Solana surpassed 200,000 daily UAW for the first time in the network’s history despite continuous infrastructure problems that usually disrupt the network.
On the positive side, not all is gloom and doom. Despite the prolonged bear season, the dapp industry has become quite resilient. The NFT market keeps evolving with refreshing projects like Goblintown and Otherside, which propelled virtual worlds to their best month.
Blockchain games have dropped in user activity, but continue to accumulate VC investments to keep the bullish momentum going. On top of all that, the leading DeFi networks are battling for the market share that Terra left behind.
- DeFi lost 45% of its value amid the Terra blockchain collapse; Uniswap surpassed $1 trillion in historical volume while extending its features into Polygon and Optimism.
- The NFT market generated $3.7 billion in May, 20% down from the USD volumes registered in April; however, the volumes measured in tokens show a 6.5% decrease.
- Otherside reaches $750 million in trading volume, propelling virtual worlds to their best month with over $850 million in May.
- Investments keep piling up to Blockchain games. The gaming category is resisting the crypto crash with only a 5% decrease in activity and 197% growth year-over-year.
Terra’s collapse deal a huge blow to the industry
The collapse of Terra on May 9 will be hard to forget in the crypto history timeline. The price of UST, then the third largest stablecoin, collapsed to 35 cents. As a result, the fall sent shivers across the entire industry that saw most stablecoins lose their peg temporarily. The Luna Foundation Guard (LFG) used 79,687 BTC worth around $3.5 billion to keep UST value afloat.
The move did not work out for the ecosystem as it could not handle the death spiral. The value of LUNA (classic), ANC, and other relevant tokens to the network were not enough to help UST regain its peg.
Finally, on May 12, the Terra blockchain was halted. The collapse of Terra saw $60 billion vanish in the most significant wealth loss in modern history. The event caused a sell pressure effect in the price of BTC and created a fear sentiment across crypto assets in general, accentuating the bear market that the industry was already experiencing.
Since then, Do Kwon, Terra’s co-founder, announced a revival plan consisting of a Terra hard-fork named Terra 2.0, which saw the light on May 28. On that day LUNA Classic token holders received the new version of LUNA through an airdrop, but with a 99% loss in value. Still, the situation for Do Kwon is far from over as South Korean authorities are taking a deep look into the situation with thousands of investors seriously affected by the crisis.
At the end of April, Terra was a burgeoning DeFi ecosystem with over $25 billion in TVL, only surpassed by Ethereum. It will be difficult for Terra to regain its position as the runner-up to Ethereum in the DeFi space. On the other hand, peer blockchains will take advantage of this situation, capturing the developer talent and audience that Terra left behind.
DeFi loses 45% of its value amid Terra’s debacle
Without question, DeFi is the blockchain vertical feeling the most the struggles from the bear season due to the direct effect of cryptocurrency prices. Nonetheless, the DeFi space was able to keep things afloat during the first four months behind rising DeFi blockchains, including Avalanche, Cronos, Near, and of course, Terra. The TVL in the industry decreased only 15% during the first four months despite DeFi tokens losing 25% to 40% of their value in the same timeframe.
Then, the Terra event happened. Since the Terra halt, BTC and ETH have lost 25% and 40% of their value. Likewise, the industry’s TVL lost 45% since the end of April and is currently estimated at $117 billion. Still, to put things into perspective, the DeFi space has gained 11% in value locked since May 2021.
Tron became the only blockchain to post positive numbers in terms of TVL by growing 47% MoM. Ethereum, BNB, Polygon, and Solana, lost between 27% and 38% as the price of their native currencies fell in similar proportions. Avalanche, Cronos, Fantom, and Near lost around 60% of this DeFi’s important metric.
In more positive trends, Uniswap reached an important milestone. The leading DeFi DEX crossed $1 trillion in all-time transactions. At the same time, the usage of Solana DeFi dapps, namely Orca (77% growth MoM), Saber (33%), and Solend (11%), is on the rise despite the constant technical issues experienced by their native blockchain.
The following months will be critical to the future of this relevant blockchain category. It remains to be seen which blockchain ecosystem can take Terra’s place as Ethereum runner-up. Or can a Layer-2 scaling solution like Optimism, fresh with its token airdrop, challenge an established Layer-1 blockchain ecosystem? That remains to be seen.
NFT market is far from dead
The NFT category remains a crucial contributor to the dapp industry amid turbulent times.The amount of interest and hype generated by this category is an intangible factor easy to overlook. The exposure that the blockchain industry receives from NFTs, puts today’s crypto market in an entirely different position from the conditions seen in the 2018 crypto winter. In those days the levels of engagement and enthusiasm around the industry were alarmingly low. While the mainstream media keeps calling for the NFT bubble to burst, the market conditions of the NFT space disagree.
The NFT market generated $3.7 billion in May, 20% down from the volumes registered in April.
While the trading volumes measured in USD show that the market is contracting at first glance, analyzing the marketplace volumes in their native tokens tells a different story.
For instance, OpenSea, the largest NFT marketplace in the industry, generated 950,000 ETH in trading volume in May, decreasing only 6.5% from April. The volumes in USD show a different perspective as changes to the price of ETH has a weighted effect on the metrics. OpenSea trading volume measured in USD decreased 25% month-over-month. Comparing both perspectives results in an 18.5% difference between both volumes in USD and ETH.
Similarly, Solana NFTs have defied the bear trend posting their best trading month in the network’s history. Solana NFTs generated $335 million across all marketplaces, growing 13% from April.
Despite the negative sentiment across the industry and the apparent NFT market contraction, this space continues to evolve while constantly generating billions in volume. Almost every month, the NFT space witnesses how new collections can shift the narrative of the entire space.
Blue-chip collections struggle as Goblins and Otherdeeds drain liquidity
Last month, Moonbirds and Solana’s Okay Bears were able to drive NFT volumes upwards despite a negative market trend, putting themselves in a position to be considered part of the top tier in their respective markets. In May, Otherdeeds propelled virtual worlds to their best month in history. In addition, Goblintown came out of nowhere, generating $31 million since launching on May 22. Furthermore, ENS collected 41% of their all-time volume this month after the 10K Club kickstarted a euphoria season around these Web3 domains.
The high demand for these projects has pushed their price upwards in a significant manner. Goblintown went from a free mint to a floor price sitting at 6 ETH, while rumors continue that Yuga Labs are also behind this mysterious project. Likewise, the average sales price of ENS went from 0.07 ETH in April to 0.11 ETH in May, where the 10K Club and 999 Club reached a floor price of 0.7 ETH and 8 ETH, respectively.
At the same time, several of the so-called ‘blue-chip’ collections have seen their value plunge over the last month. The hype around some of the newer collections certainly hoarded liquidity from the market. Still, several particular events related to these respective blue-chip ecosystems were the main contributors to the decline in price.
The case of BAYC and MAYC is directly associated with the Otherside narrative. Holders of these collections were airdropped premiere Otherdeeds NFTs, creating a hype cycle before the snapshot leading to the record values at the end of April. Once the mint event was completed, the floor price started to fell. The BAYC floor decreased 38% from April 30, falling from 150 ETH to 93 ETH. MAYC lost 57% in the same period and traded for 18 ETH. A similar situation arose with Doodles, which after launching Dooplicator, saw its price decrease 48% from 23 ETH to 12 ETH.
But there are different stories to each NFT collection. In May, the anime-inspired collection Azuki lost 75% of its value due to a scandal, as the project’s founder was associated with numerous rug pulls and scams. The floor price fell from 31 ETH to 8 ETH, although the project managed to recover some ground to its current floor of 12 ETH with some help from the Beanz.
Overall, the loss in value of the top-tier NFT projects caused a down effect in the NFT Market Cap for the top 100 Ethereum collections. The price of ETH decreased 37% since the end of April, but the tumble of blue-chip projects brought the metric down 45% to $10 billion from the $18 billion reached in April.
Despite the falling numbers, blue-chip collections were among the most traded, showing that their respective ecosystems are only going through a consolidation period. Moreover, notwithstanding falling prices in cryptocurrency values, the value of these assets decreased at a lower rate than underlying cryptocurrencies during the last months. Similar behavior to the Art100 index, when in The Great Recession of 2008, lost 26% of its value compared to the 56% loss of the S&P 500. It feels like NFTs are becoming assets that could decouple from financial markets at some point.
Is OpenSea losing ground to rising marketplaces?
Another fascinating trend forming around the NFT market is the increased competition among marketplaces. OpenSea remains the dominant marketplace but increased organic activity in other competitors shows signs of a mature and evolved NFT space.
OpenSea’s volume dominance has fallen from a 90% in the first four months of the year to the current 84% measured in May. This condition comes despite a 2% month-over-month growth in the number of UAW that interacted with the marketplace this month (398,000 UAW in May). To some extent, marketplace aggregators such as Gem and Genie have given more visibility to LooksRare and X2Y2 by providing a holistic view of the NFT market.
In May, LooksRare attracted 30,000 UAW, improving its user base by 22% from April’s numbers. Using hildobby (a renowned Web3 data scientist) formula to filter wash trading activity*, we see that organic volume grew 473% in the community-driven marketplace reaching $250 million in organic trades during May.
Likewise, X2Y2, an Ethereum marketplace that operates with a 0.5% trading fee, grew its user base by 93% MoM attracting 11,500 UAW in May. The marketplace generated $22 million in trading volume, improving 286% from the previous month.
OpenSea’s dominance has undoubtedly decreased as the NFT space becomes more mature and competitive, with volume rising in Solana’s Magic Eden, Wax’ Atomic Hub, and Ethereum’s art-focused Foundation. Still, it is safe to say that OpenSea’s presence will remain dominant for months to come. The marketplace revamped its appearance with a new layout providing a new user experience. Also, it acquired Gem on April 27 and released Seaport, an open-source platform to help creators launch their NFTs.
The biggest loser, without question, has been the Coinbase marketplace, a failed experiment that has generated only $2.5M since launching on April 20, 2022. We’ll continue to monitor closely how the battle for NFT marketplaces evolves in the upcoming months.
Are blockchain games sidestepping the market crash?
Blockchain games have been the most resisting category to the industry bear market. The number of game transactions and the number of daily UAW connected to game dapps decreased only 5% from April’s levels. Still, when compared to DeFi or even NFTs, blockchain games are suffering the least.
The top blockchain games continue to maintain their player base, showing real engagement atop the charts. Furthermore, metaverse and blockchain game-based projects keep attracting VC capital at rising levels. In May, Dapper Labs announced a $725 million fund to accelerate growth in the Flow ecosystem along with a16z’s massive $4.5 billion commitment for its Crypto Fund 4 that will focus on developing blockchain projects.
Overall, blockchain gaming keeps adding more adepts with dapps like STEPN or Genopets embedding a gamification element to physical activities in the move-to-earn trend. Finally, Otherside, the play-to-earn BAYC metaverse project generated $760 million in May, spurring virtual world NFTs to their best month with $850 million.
To get more insights on blockchain games, and trends like virtual worlds, move-to-earn, and the leading game dapps, be sure to read our upcoming BGA Games Report.
Closing – What can we make from the current situation?
The macroeconomic situation and the Terra event have accentuated the effects of the bear season, dragging crypto prices down along with a slight decrease in enthusiasm for the industry. Still, it is a positive signal that user adoption and the number of web3 developers are rising. Likewise, it is encouraging to see that the dapp industry has matured into a multi-chain ecosystem able to resist an adverse event of the magnitude of Terra.
The NFT market resists the negative trend and appears to be consolidating after January’s peak. New collections like Moonbirds, Goblintown, and Otherside help the NFT community to remain engaged while specific NFT collections continue building intriguing Web3 ecosystems.
In the same way, the NFT market shows signs of clear evolution. It is not rare to see Solana NFT collections atop the NFT rankings. The organic volume in LooksRare has grown from a 2% in January to the 35% observed in May. The popularity of NFT aggregators has gone through the roof while leading marketplace OpenSea keeps evolving itself.