Dapp Industry Report: Q1 2021 Overview

Dapp Industry Report
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The blockchain industry grew by 639% year-on-year

In the first quarter of 2021, we’ve seen lots of excitement from the non-fungible token (NFT) market, creating increased interest in NFT technology, digital art, and virtual worlds. At the same time, the DeFi ecosystem continued to lead the industry. During the first three months of this year, the blockchain industry proved it’s more than just DeFi. 

Source: Google Trends

High Ethereum gas prices continued to be an issue for all verticals as multiple DeFi, NFT, and game dapps announced their expansion to other chains. The dominant narrative in the sector remained the emergence of the multichain paradigm.

Ethereum contenders were active as ever. Binance Smart Chain (BSC) proved to be the largest competitor to Ethereum during Q1. Several top DeFi dapps moved or announced an expansion to BSC. NFT and game dapps were more in favor of choosing Polygon or Flow.

The first quarter of 2021 was marked with record-high sales in the NFT market. Both new and existing NFT projects hit unseen sales. While the highest transaction volume was generated by NBA Top Shot, the most memorable was an art piece by Beeple which was sold for more than $69 million. 

Finally, the Ethereum DeFi ecosystem remained the largest in terms of total value locked (TVL), doubling its TVL in the first three months of 2021. On the other hand, the BSC DeFi ecosystem TVL grew 30 times during the same timeframe. 

Key takeaways

  • The blockchain industry grew by 639% year-on-year, reaching 458,000 daily unique active wallets across all chains in Q1 2021.
  • BSC has overcome Ethereum in terms of daily unique active wallets: 105,000 and 75,000 respectively.
  • Ethereum maintained leadership by generating $54 billion in TVL.
  • Venus TVL has surpassed Uniswap and Compound TVL at the end of March 2021.
  • NFTs faced record-high transaction volume and generated more than $1.5 billion in Q1 2021.
  • NBA Top Shot maintained its leadership and was the most significant dapp in the NFT space with around $500 million in transaction volumes during Q1 2021.

Table of Contents

  • Key takeaways
  • Scalability issues drive a multichain paradigm
  • Extensive competition lead to changes in the leaderboard
  • Polygon sees record growth
  • Comparing the two: Ethereum vs BSC TVL
  • DeFi and NFTs collide
  • NFTs generate record-high transaction volume
  • Top sales made the NFT category even more exciting
  • Top new NFT projects during Q1 2021
  • New collections inspired by existing ones
  • ‘’Tokenizing everything’’ or lessons to be learned
  • The road ahead

Scalability issues drive a multichain paradigm

Ethereum gas prices tend to grow in waves. Although we see a slight decrease in the gas price recently, it is still relatively high. As a result, Ethereum projects are exploring alternatives. More and more top platforms are deploying on Ethereum rivals. 

Most recently, Aave announced that it will be exploring new frontiers with Polygon. Earlier in March bZx and 1inch also announced their appearance on Binance Smart Chain, followed by 0x and Matcha. SushiSwap is another project expanding its footprint and will be entering the Avalanche ecosystem. 

DeFi dapps were not the only category that looked for scalability solutions. Several NFT dapps announced plans to move either to layer 1 solutions such as Flow and Ronin or layer 2 solutions. Polygon has so far proved to be the number 1 choice for NFT platforms.

To conclude, in 2021 Q1 various top dapps announced plans to move their activity on to multiple chains resulting in several implications. Firstly, it might decrease Ethereum key metrics tremendously in the future. Secondly and most importantly, it might trigger increased usage of both DeFi and NFT dapps.

Extensive competition brought changes in the leaderboard

Q1 2021 was an exciting quarter for the blockchain industry. In terms of key metrics, daily unique active wallets grew by 639% year-on-year from 62,000 in 2020 Q1 to more than 458,000 in 2021 Q1. 

BSC was not only the largest contributor with average daily unique active wallets of 105,000. In March, the chain also had the biggest increase in terms of unique active wallets by 50% month-on-month. The Ethereum and Flow blockchains generated an average of around 75,000 and 53,000 daily unique active wallets respectively. That means increased usage of 7% in March alone. 

2021 Q1 was a memorable quarter as Binance Smart Chain beat Ethereum in terms of daily unique active wallets. Taking into consideration that several top dapps announced plans to move cross-chain, we might see an even bigger gap between BSC and Ethereum in Q2.

Polygon sees record growth

One of the most prominent layer-2 solutions, Polygon (formally Matic), faced significant growth in Q1 2021. Daily unique active wallets grew by 496% from 500 to 4800 quarter-on-quarter. Transaction volumes also followed the trend with a growth of 288% reaching $0.5 billion in Q1 2020. 

The reason behind the growth has been the DeFi exchange QuickSwap. QuickSwap generated 87% (or $443 million) of total Polygon transaction volume. With OpenSea, Aave, and Aavegotchi all expected to join the Polygon ecosystem, we can expect the blockchain solution to expand even more. On the other hand, Polygon activity is still far away from Ethereum and BSC heights.

Comparing the two: Ethereum vs BSC TVL

BSC proved to be a legitimate contender to Ethereum in 2021. Within a little more than six months of existence the blockchain overcame Ethereum in several key metrics. On the other hand, in Q1 2021 Ethereum kept its leadership in terms of total value locked and is still the most significant blockchain within the DeFi ecosystem.

Source: DappRadar and Defistation.io

In Q1 2021 Ethereum TVL grew from more than $21 billion to $54 billion quarter-on-quarter. The biggest contributors were MakerDao, Uniswap, and Compound that account for 33% of the total value locked. 

At the end of Q1 2021, BSC had around $20 billion in TVL. Comparing quarter-on-quarter growth, TVL grew more than 30 times from $0.6 billion to $20 billion. 

Source: DappRadar and Defistation.io

Although Binance Smart Chains TVL is still more than 2 times lower than that of Ethereum, several BSC dapps overcame top Ethereum dapps according to defistation.io data. 

For instance, at the end of March top BSC dapps, Venus and PancakeSwap had around $6.3 billion and $5.7 billion in TVL respectively. While MakerDAO, Uniswap, and Compound had $6.6 billion, $5.7 billion, and $6.1 billion in TVL. This means that Venus has already surpassed Uniswap and Compound in terms of total value locked.

To conclude, BSC is offering strong competition for Ethereum in the DeFi ecosystem. Taking into consideration how extensively DeFi dapps are expanding to BSC, it might not take long for BSC to become a leader across all key metrics.

DeFi and NFTs collide

The trend of NFTs integrating financial concepts started back in 2020. For instance, yInsure NFTs on Rarible enabled users to buy and sell insurance for certain DeFi projects. The insurance is limited, but the concept shows how NFTs can be used to create a liquid market.

Aavegotchi was another NFT flirting with gamified DeFi concepts. These assets are simultaneously collectibles and revenue-bearing entities. Recently, Aavegotchi mustered a surge in terms of daily unique active wallets surpassing 3,000. The pixelated ghost project is now among the top 10 most used dapps in the NFTs space.

Source: DappRadar

Finally, Uniswap dropped an NFT surprise recently. Uniswap v3 will use NFTs to tokenize liquidity positions. These movements are important for the industry as it shows a path of industry development. It might also change the concept of DeFi projects too where we start to see DeFi and NFTs even more interconnected.

NFTs see record-high transaction volume

Q1 2021 so far has arguably been all about NFTs. The category generated more than $1.5 billion in transaction volume in the first three months of the year alone. Even though this is just a fraction when compared with the DeFi ecosystem, the NFT market is facing rapid growth of 2,627% quarter-over-quarter. 

The biggest contributors were NBA Top Shot, CryptoPunks, and OpenSea that accounted for 73% of total transaction volume.

Source: DappRadar

NBA Top Shot is still the number one dapp in the NFT space attracting plenty of media attention as well as users. It has generated almost $0.5 billion in Q1 2021. Although the figures are impressive, the dapp has witnessed a decrease in March compared to February. It is not a secret that rapid growth created technical issues within the platform. Technical issues created user retention and satisfaction problems. While the dapp continues to be the number 1 in the NFT space, user retention and satisfaction is going to be a key challenge in the long run.

CryptoPunks garnered 2nd place as the most significant dapp in the NFT sector. Overall interest in the very first blockchain collection has increased over the last couple of months with activity driven mainly by top punk sales. 

Finally, the 3rd position went to the OpenSea marketplace. They achieved the number 1 position in the secondary market category. Moreover, increased activity was mainly driven by new features such as NFT minting and airdrops. Additionally, interest spiked after the announcement of a successfully closed funding round.

Top sales made the NFT category even more exciting

The surge is spotted in the top 5 NFT sales too. If looking into January’s top 5 sales, there were no single sales of more than $1 million. February and March’s top sales showed NFTs real potential with sales of more than $6.6 million and $69 million respectively. Furthermore, CryptoPunks sales have exploded, a couple of punks were purchased for more than $7 million per punk. 

Source: DappRadar NFTs page

Top new NFT projects during Q1 2021

The first quarter of 2021 was full of new NFT project launches. The trend of digital collectibles has been going for quite some time, but the launch of Hashmasks became the beginning of a tidal wave. After that came Picasso Punks, Polkamon, Chubbies, Bullrun Babes, NFT collection boxes, and old projects like Moon Cats Rescue and CryptoCats were rediscovered. 

The launch of new projects fueled the NFT market with excitement. During that time, Hashmasks stood their ground, while the Moon Cats Rescue hype already seems to be fading. At the same time, Picasso Punks seem to be ramping up.  

Source: Opensea.io

On the other hand, the vast majority of new projects have a pattern to generate more volume within the first 7 days of launch. Afterward, the activity vanishes, and secondary market activity remains only for a short amount of time.  

The reason behind it is that collection creators concentrate mostly on initial distribution. Arguably, the most important element to keep the collection interesting is its uniqueness, utility, and most vitally continuous storytelling that keeps users involved.

New collections inspired by existing ones

Another trend within the market is attempting to introduce existing collection-inspired new NFTs. The top ones are alternative copies of CryptoPunks. With a floor price of around $30,000, CryptoPunks is hardly reasonable for average collectors. At the same time 3DPunks, Picasso Punks, and Unofficial Punks provide a cheaper alternative. Even though some of the Picasso Punks are already selling for small fortunes

Source: OpenSea.io

Although the floor price of Picasso Punks and 3DPunks is currently around 1.9 ETH and 2.9 ETH, these aren’t cheap investments. However, these are still 8 to 10 times cheaper than original CryptoPunks. 

‘’Tokenizing everything’’ or lessons to be learned

Last but not least, we’re seeing a trend to make everything into an NFT. In our most recent weekly roundups, we talk about the excitement that tweets, brands, or celebrity NFTs might create and the unhealthy hype within the industry. A digital collectible NFT with thousands of copies from a B-list celebrity might generate some hype right now, but what will be left when the dust settles?

The industry needs to learn from 2017, and buyers should be careful before deciding to buy an NFT of which the value is only driven by hype.

The road ahead

Several major trends are dominating the blockchain industry at this very moment. First of all, Ethereum scalability issues have resulted in a lost leadership position in several key metrics. Binance Smart Chain has overcome the Ethereum blockchain in terms of unique active wallets. Even though Ethereum has maintained pole position in terms of total value locked. The rapid growth of DeFi dapps in the BSC ecosystem while existing projects on Ethereum are moving over might change this picture as well. 

Secondly, it’s more than obvious that the blockchain industry is going through a growth wave led by NFTs. This influx of users and trading activity is fueled by large digital collectible sales and the launch of completely new projects. However, rapid growth also comes with a downside. The concept of tokenizing everything might create some initial hype, but we need to question its long-term value. 

Also NBA Top Shot has become the most popular NFT project on the market, but this also raised the question of whether dapps are ready for mass adoption. Going forward, developers will need to put emphasis on user retention and experiences that leave consumers, users, and fans longing for more.

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