DappRadar Blockchain Industry Report - May 2022

The blockchain industry has shown its resilience amidst the crypto winter exacerbated by Terra's debacle. NFTs and games continue to show signs of development and maturity, while DeFi seems to be starting to recover.

The collapse of Terra, the former second-largest DeFi ecosystem, and the related collapse of the LUNA token and UST stablecoin, has exacerbated the bear season that is still affecting the crypto space.

Bitcoin dragged down the entire cryptocurrency market, closing below $30,000 for the first time since December 2020. The prices of some altcoins are down as much as 90% from their November peaks.

Dapp activity has fallen to its lowest point this year, with 2.22 million unique active wallets (UAW) connected to blockchain dapps per day in May. This figure represents a month-on-month (MoM) decline of 5%, but is still 32% higher than in May 2021.

However, the Solana network surpassed 200,000 daily UAWs for the first time, despite ongoing infrastructure issues that regularly 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 is constantly evolving, with refreshing projects like Goblintown and Otherside propelling the virtual world into its best month yet.

Blockchain games have seen a drop in user activity, but continue to accumulate VC investment to maintain the bullish momentum. Beyond that, leading DeFi networks are vying for market share left by Terra.

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DeFi lost 45% of its value due to the collapse of the Terra blockchain; Uniswap surpassed $1 trillion in historical transaction volume while expanding its capabilities to Polygon and Optimism.

The NFT market generated $3.7 billion in May, down 20% from April; however, transaction volume measured in tokens was down 6.5%.

Otherside hit $750 million in volume, propelling virtual worlds to their best month in May (over $850 million).

Investments keep accumulating into blockchain games. The gaming category is fending off the cryptocurrency crash, with activity down just 5% and up 197% year-over-year.

Terra's debacle is a huge blow to the industry

Terra’s crash on May 9 will be unforgettable on the timeline of crypto history. The price of UST, the third-largest stablecoin at the time, plummeted to 35 cents. As a result, the drop sent shudders across the industry, with most stablecoins briefly de-pegged from the U.S. dollar. The Luna Foundation Guard (LFG) used 79,687 bitcoins worth approximately $3.5 billion to maintain the value of UST.

The move didn't work for the ecosystem because it couldn't handle the death spiral. LUNA (Classic), ANC, and other associated tokens of the network are not worth enough to help UST repeg.

Finally, on May 12, the Terra blockchain stopped functioning. Terra's collapse resulted in a loss of $60 billion, making it the largest loss of wealth in modern history. This event created a selling pressure effect on the price of Bitcoin and created a sentiment of fear throughout the crypto asset, exacerbating the bear market the industry was experiencing.

Terra co-founder Do Kwon has since announced a revival plan, including a Terra hard fork called Terra 2.0, which went live on May 28. On the same day, LUNA Classic token holders received a new version of LUNA through an airdrop, but lost 99% of its value. Still, the situation at Do Kwon is far from over, with South Korean authorities digging deeper into the investigation as thousands of investors have been severely affected by the crisis.

At the end of April, Terra was a thriving DeFi ecosystem with over $25 billion in TVL, second only to Ethereum. It is difficult for Terra to regain its runner-up status behind Ethereum in the DeFi field. On the other hand, other blockchains will take advantage of the situation, attracting the development talent and audience Terra left behind.

DeFi Loses 45% of Value in Terra's Crash

Without a doubt, DeFi is the blockchain vertical that has felt the most struggles during the bear season due to the direct impact on cryptocurrency prices. Nonetheless, in the first four months, the DeFi space was able to sustain itself on the back of emerging DeFi blockchains including Avalanche, Cronos, Near, and of course Terra. While DeFi tokens lost between 25% and 40% of their value over the same time frame, the industry’s TVL fell by only 15% in the first four months.

Then, the events of Terra happened. Since Terra stopped, BTC and ETH have lost 25% and 40% of their value, respectively. Likewise, the industry has lost 45% of its TVL since the end of April and is now estimated at $117 billion. In the long run, though, the value locked in the DeFi space has grown by 11% since May 2021.

Tron became the only blockchain to score a positive number in terms of TVL, with a 47% increase in MoM. Ethereum, BNB, Polygon, and Solana lost between 27% and 38% as the prices of their native currencies fell in similar proportions. Avalanche, Cronos, Fantom, and Near lost 60% in this important DeFi metric.

In a more positive trend, Uniswap reached a major milestone. The leading DeFi DEX surpassed $1 trillion in trading volume. Meanwhile, usage of Solana DeFi Dapps (Orca, MoM up 77%), Saber (33%) and Solend (11%) are also on the rise, despite continued technical issues with their native blockchains.

The next few months will be critical for the future of this related blockchain category. It remains to be seen which blockchain ecosystem will replace Terra as the runner-up to Ethereum. Or can a layer 2 scaling solution like Optimism (via its token airdrop) challenge a mature layer 1 blockchain ecosystem? That remains to be seen.

The NFT market is far from dying

During turbulent times, the NFT category remains a key contributor to the Dapp industry. The interest and hype generated by this category is an intangible factor that is easily overlooked. The exposure the blockchain industry has gained from NFTs puts today’s cryptocurrency market in a very different situation than it did in 2018’s crypto winter. In those days, the level of engagement and enthusiasm across the industry was surprisingly low. Although the mainstream media has been claiming that the NFT bubble has burst, the market conditions in the NFT field do not agree with this statement.

The NFT market generated $3.7 billion in volume in May, down 20% from April.

While dollar-denominated volumes suggest at first glance that the market is shrinking, analyzing market volumes in native tokens tells a different story.

For example, OpenSea, the largest NFT marketplace in the industry, had a transaction volume of 950,000 ETH in May, a decrease of only 6.5% from April. Since changes in ETH price have a weighted effect on the indicator, USD volume presents a different perspective. OpenSea transaction volume in dollar terms was down 25% from the previous month. A comparison of the two perspectives reveals an 18.5% difference between USD and ETH-denominated volumes.

Likewise, Solana NFT is immune to bearish trends, with May becoming the best trading month in the network’s history. Solana NFTs generated $335 million in volume across all markets, up 13% from April.

Despite the negative sentiment across the industry and the apparent shrinkage of the NFT market, the space continues to grow while generating billions of dollars in transaction volume. Almost every month, the NFT space witnesses how new series change the narrative of the entire space.

Blue chip series struggles as Goblins and Otherdeeds run out of liquidity

Last month, Moonbirds and Solana’s Okay Bears were able to drive NFT volumes up despite adverse market trends, giving them leadership positions in their respective markets. In May, Otherdeeds propelled the virtual world into its best month in history. Additionally, Goblintown has generated $31 million in transaction volume since its launch on May 22. Furthermore, after the 10K Club kicked off the season of excitement around Web3 domains, ENS saw 41% of its historical volume traded this month.

High demand for these items has driven their prices significantly higher. Goblintown changed from free minting to a floor price of 6 ETH, and there are rumors that Yuga Labs is also supporting this mysterious project. Similarly, the average sales price of ENS increased from 0.07 ETH in April to 0.11 ETH in May, among which the floor prices of 10K Club and 999 Club reached 0.7 ETH and 8 ETH respectively.

Meanwhile, the value of some so-called "blue chip" series has fallen sharply over the past month. The hype around some new collections has undoubtedly hoarded liquidity from the market. Nonetheless, a few idiosyncratic events associated with these respective blue-chip ecosystems were the main reason for the price drop.

The situation in BAYC and MAYC is directly related to the Otherside narrative. Holders of these collectibles were airdropped to Otherdeeds NFTs, creating a hype cycle leading up to the snapshot that resulted in a record value at the end of April. As soon as the casting activity was completed, the floor price began to fall. The BAYC floor price dropped 38% from April 30, from 150 ETH to 93 ETH. MAYC is down 57% over the same period and is trading at 18 ETH. A similar situation happened with Doodles, whose price dropped by 48% from 23 ETH to 12 ETH following the launch of Dooplicator.

But each NFT series has a different story. In May, the anime-inspired Azuki series lost 75% of its value in a scandal involving numerous rug pulls and scams involving the project's founders. The floor price dropped from 31 ETH to 8 ETH, although with the help of Beanz, the project managed to recover to the current 12 ETH.

Overall, the value loss of the top NFT projects led to a decline in the market capitalization of the top 100 Ethereum-based NFTs. The price of ETH has fallen 37% since the end of April, but a plunge in blue-chip projects has pushed the metric down 45% to $10 billion from $18 billion in April.

Despite the decline, the blue-chip series are still the most traded, suggesting that their respective ecosystems are only going through a period of adjustment. Moreover, despite the decline in cryptocurrency prices, the value of these assets has fallen at a slower rate than the underlying cryptocurrency over the past few months. During the Great Recession of 2008, the Art100 had a similar performance, falling 26%, compared with a 56% drop for the S&P 500. It feels like NFTs are becoming assets that are somewhat decoupled from the financial markets.

Is OpenSea losing out to emerging markets?

Another interesting trend in the NFT market is the increasing competition between markets. OpenSea is still the dominant market, but the increase in organic activity by other competitors shows the maturity and development of the NFT space.

OpenSea's dominance in deal volume has fallen from 90 percent in the first four months of this year to 84 percent in May this year. This comes despite a 2% increase in the number of UAWs interacting with the market this month from the previous month (398,000 in May). In a way, market aggregators like Gem and Genie provide LooksRare and X2Y2 more exposure by providing a holistic view of the NFT market.

In May, LooksRare attracted 30,000 UAWs, a 22% increase from April. By using the hildobby (a well-known Web3 data scientist) formula to filter for wash trading activity*, we saw a 473% increase in organic volume in the community-driven marketplace, reaching $250M organically in May.

Similarly, Ethereum marketplace X2Y2, which operates with 0.5% transaction fees, saw its user base grow 93% in May, attracting 11,500 unique active wallet addresses. The market volume was $22 million, an increase of 286% from the previous month.

As the NFT space has become more mature and competitive, OpenSea’s dominance has undoubtedly declined, with Solana’s Magic Eden, Wax’s Atomic Hub, and art-based Ethereum platform Foundation all on the rise. What is certain, though, is that OpenSea will remain dominant in the coming months. The market has improved its appearance with a new layout, providing a new user experience. Additionally, the company acquired Gem on April 27 and released Seaport, an open-source platform that helps creators launch NFTs.

Undoubtedly, the biggest loser is the Coinbase marketplace, a failed attempt that has only generated $2.5 million since its launch on April 20, 2022.

Can Blockchain Games Avoid Market Crash?

Blockchain gaming has been the category most resistant to the industry bear market. Compared with April, the number of game transactions and the number of UAWs connected to game Dapps on a daily basis only decreased by 5%. Still, blockchain gaming has been the least affected compared to DeFi or even NFTs.

The top blockchain games continue to maintain their player numbers, showing real user stickiness on the leaderboard. In addition, projects based on Metaverse and blockchain games are attracting more and more VC capital. In May, Dapper Labs announced a $725 million fund to accelerate the growth of the Flow ecosystem, while a16z also committed $4.5 billion to its Crypto Fund 4, which will focus on developing blockchain projects.

In general, blockchain games continue to add more experts, such as Dapps such as STEPN or Genopets, embedding gamification elements into physical activities in the move-to-earn trend. In addition, the earning while playing BAYC metaverse project Otherside generated 760 million US dollars in May, pushing the virtual world NFT to create the best performance of 850 million US dollars in May.

Conclusion - what can we take away from the current situation?

The macroeconomic situation and the events of Terra exacerbated the impact of the bear market, pulling down cryptocurrency prices, while enthusiasm for the industry declined slightly. Still, user adoption and the number of web3 developers are on the rise, which is a positive sign. Also, it is encouraging that the Dapp industry has matured into a multi-chain ecosystem that can withstand major adverse events like Terra.

Resisting negative trends, the NFT market appears to be correcting after its peak in January. New collectibles like Moonbirds, Goblintown, and Otherside help the NFT community stay engaged, while specific NFT collectibles continue to build interesting Web3 ecosystems.

Likewise, the NFT market is showing clear signs of development. It is not uncommon for the Solana NFT series to top the NFT rankings. LooksRare’s organic volume has grown from 2% in January to 35% in May. The popularity of NFT aggregators has peaked, and leading NFT marketplace OpenSea is also growing.

This report is compiled from DappRadar

Source: https://dappradar.com/blog/dappradar-industry-report-may-2022