Dapp Industry Report: Q1 2022 Overview

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2.4 million daily active users of dapps, despite unfavorable global events and blockchain security concerns

The first three months of 2022 have reminded everyone in the dapp industry how quickly this nascent space is evolving in front of our eyes. Dapps from different categories – namely games, DeFi, and NFTs – are showcasing their potential in front of us, while also highlighting the challenges that must be tackled before going full mainstream. 

The war in Ukraine became a negative externality from the macroeconomic perspective. The sanctions imposed on Russia negatively impacted the markets, including the crypto sector. Although it appears a gradual recovery is in the process. At the same time, the positive social impact of the Web3 community was on full display again when millions were raised by UkraineDAO and other types of organizations to alleviate the humanitarian crisis in the eastern European country. 

From the NFT perspective, although the trading volumes cooled down from a hot January start, the number of trades has increased substantially in networks like Avalanche, Flow, Polygon, and Solana. This signals an expanding NFT market with broadening adoption across the ecosystem. 

Meanwhile, the DeFi and game spaces keep maturing. Terra has confirmed itself as a DeFi powerhouse, while the top blockchain game projects continue to evolve and consolidate further. 

Key Takeaways

  • Despite the macroeconomic picture challenging the global markets, the dapp industry registered 2.38 million daily unique active wallets (UAW).
  • Security continues to be an important topic as $1.2 billion was stolen in hacks and bridge exploits in the first quarter of 2022 alone. Bridges have become a target for attackers.
  • In Q1 2022 NFTs generated $12 billion in trades while the number of sales and unique traders is on the rise; the NFT activity in blockchains outside Ethereum is ramping up.
  • The DeFi space shows signs of maturity. The complete DeFi industry holds $214 billion in TVL albeit an 8% decrease from the close of 2021.

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2.38 million daily UAW connected to blockchain dapps in Q1

The effects of the War in Ukraine and the economic sanctions imposed on Russia disrupted the global markets, and cryptocurrencies were not the exception. During Q1 2022, the dapp industry registered 2.38 million daily Unique Active Wallets connected to blockchain dapps on average. This represents a 5.8% decrease from Q4 2021 when the industry surpassed 2.5 million daily active wallets. 

Play-to-earn dapps continue to dominate the industry from the user perspective as blockchain-based games were responsible for 50.5% of the industry’s connected wallets. Networks like Harmony, Polygon, and Avalanche were able to defy the downward spiral behind play-to-earn and GameFi dapps showing that games still dictate the pace of the industry in terms of usage. 

$1.2 billion was stolen in security breaches during Q1

Security is one of the biggest challenges to tackle in the nascent blockchain space. According to the REKT Database, $1.19 billion were stolen by hacks and exploits in the first three months of 2022. The figure comes with some concern, as the hacks that occurred in Q1 represent 35.8% of all-time stolen funds from the same REKT Database source. 

Also, it is worth noting that bridges – platforms used to transfer tokens from one blockchain to another – have become the target of malicious attacks. Last week, Sky Mavis announced that the Ronin bridge, used to move assets between Ethereum and Ronin, was exploited. This resulted in the loss of $615.5 million worth of ETH and USDC. This attack became the largest theft in the history of cryptocurrencies.

In February, the Solana Wormhole, another popular bridge, was exploited for $326 million. Vitalik Buterin highlighted at the start of this year the technical limitations of bridges, pondering whether the need for a multichain ecosystem rather than a cross-chain like the one we’re currently seeing is worth the risk. Prepare yourself to see security and regulations as regular topics in the industry’s conversation for months to come.

The increasing presence of Web3 brands

In the last half of 2021, the market witnessed how influential brands began partnering with native Web3 projects. Adidas joined The Sandbox and launched its first NFT along with Bored Ape Yacht Club (BAYC) and Punks Comic teams. Nike acquired RTFKT, the minds behind Clone-X to create a metaverse fashion powerhouse. 

This time, Yuga Labs, the creators of the BAYC, have raised a $450 million investment led by a16z which also involves Animoca Brands. The BAYC creators drew headlines earlier in March after acquiring the IP of CryptoPunks and Meebits, two of the most popular NFT collections previously owned by Larva Labs. The move established Yuga Labs as one of the most relevant brands in Web3. At writing, Yuga Labs NFTs represent 44% of Ethereum’s Top 100 NFT collections market cap. No other group in the NFT space is even close in terms of dominance.

In the same way, Animoca Brands is one of the leading brands in the Web3 landscape. The Hong-Kong based company has become a type of VC organization investing in serious blockchain projects with a notable focus on the play-to-earn narrative. The investment in Yuga Labs will provide the team with more capital to continue building Otherside – its ambitious interoperable metaverse project. Otherside is expected to involve play-to-earn games, fashion plans, and media platforms.

The metaverse presents one of the most enticing use cases for blockchain and Web3. The interest in virtual reality is imminent, however, some of the leading organizations from different traditional industries are undeniably lured by the decentralized metaverse. The underlying economies propelled by NFTs and cryptocurrencies will shift the way in which we socialize, earn, and trade. 

Despite mainstream allegations, NFTs are here for the long-run

The NFT market is undergoing a consolidation period after a historical start of the year. In March, the NFT space amassed $31.4 billion in trades, 62% of them coming from LooksRare marketplace. To make a more accurate comparison, the NFT market excluding activity on LooksRare generated $12 billion in Q1, decreasing slightly by 2% from the volumes recorded in Q4 2021.

The activity on LooksRare is something to monitor. The marketplace has constantly released products that showcase their consideration for the community, as the team is upgrading the user experience on a consistent basis. Plus, it appears that the inorganic or wash trading activity drops quickly after the initial LOOKS mining rewards were halved. These token rewards incentivize inorganic trading behavior and boosted the platform at the initial stage. 

Another positive sign for the NFT space is the increase in the number of sales occurring in blockchains other than Ethereum. The number of trades on Avalanche increased 582%  from the previous quarter, while the sales count on Solana and Polygon increased 34% quarter-over-quarter (QoQ).

Altogether, the NFT space shows signs of maturing. The market for NFTs starts to recognize valuable or hidden gem projects after seeing too many debacles like the Pixelmon and Tai Lopez NFT launches. 

The top Ethereum NFT projects have an established market that might be out of reach for the majority of people. Thus, it is positive to see that NFTs on other networks are picking up the pace too, showing that NFT adoption is only beginning.

Terra blends bitcoin into its $20 billion TVL ecosystem

No other category felt the downward trend more than DeFi. The industry’s Total Value Locked (TVL) and the number of UAW connected to DeFi dapps took a hit to the falling price of cryptocurrencies. At the end of March, the industry’s TVL was estimated at $214 billion, 8.4% lower than December. Even though the TVL and the usage (8.4% and 20.5% respectively) metrics are decreasing from the previous quarter, the industry appears to be consolidating and maturing.

From a blockchain perspective, the Cosmos-based blockchain Terra saw the most significant leap. Terra has clearly established itself as the second network in terms of TVL behind Ethereum with $23 billion locked at the end of March, increasing the metric by 68% from the end of 2021. Terra has become a dominant DeFi force thanks to an effective stablecoin ecosystem and complete DeFi protocols like Anchor, that offer competitive yields. Terra holds around 10% of the industry’s TVL, the second most dominant network behind Ethereum’s 60% TVL dominance.

Besides the rising TVL, Terra has been recently in the spotlight as Do Kwon, Terra’s co-founder announced that the blockchain has begun a process of collateralizing its popular stablecoin UST with bitcoin, to relieve LUNA from the arbitrage pressure inherent to the minting mechanism of UST and thus elevate the user confidence in the whole ecosystem. 

BTC is considered one of if not the safest digital assets. Kwon’s move might create some instability in the short term but is clearly confident of the asset’s value in the long run. Terra’s treasury wallet closes in March as the third-largest holder of BTC behind Satoshi and Michael Saylor. Certainly, something to monitor in upcoming months.

DeFi shows signs of maturity

Ethereum and Terra are clearly atop of the DeFi rankings in a superior tier. However, the competition in the next levels is heating up. BNB Chain – formerly known as BSC – and Avalanche are both established DeFi networks with $13 billion and $10 billion in TVL respectively. Both networks have lost value since the previous quarter as BNB’s TVL decreased 27% while Avalanche saw its number drop 12% QoQ. 

However, zooming out, BNB has lost 13% to the previous year while Avalanche has gained 3,600% from the previous year. Both networks are heading in different directions although BNB will continue to rely on PancakeSwap, the most used blockchain dapp in the industry.

It is also interesting to revisit the case of Fantom, a layer-1 network that was gaining ground in the TVL race. Fantom closes March with $6.6 billion in TVL, increasing the metric by 42% from the end of last year. However, Andre Cronje, one of the most influential minds in the world of DeFi and Web3, stepped out as Fantom’s technical advisor in March. His departure left a big gap in the DeFi space indefinitely. After two strong months at the start of the year, Fantom’s TVL on the network decreased by 41% from February. We’ll continue to monitor the state of DeFi on Fantom. 

As previously stated, despite being down in TVL, the blockchain space shows signs of a gradual maturing process. As the crypto market challenges the previous bear trend, the interest in DeFi appears to be coming back. Nonetheless, it might be time to acknowledge that DeFi might be the latest big blockchain category to be adopted. DeFi should benefit from the convergence with games (GameFi) to really make a dent.

VCs poured over $2.5 billion into blockchain games in Q1 2022

Blockchain-based games have been the industry’s driving force in terms of activity amid the negative macro trends. The most important games keep their audience engaged and will be looking to expand to new players with upcoming releases and enhancements.

Amidst the biggest crisis faced by Sky Mavis, the Axie Infinity team is pushing ahead with the planned rollout of Axie Infinity: Origin. The Sandbox Alpha season 2 ended last week attracting thousands of new users with 35 live experiences showcasing the platform’s entertainment potential. 

Also, the interest in blockchain games is getting more noticeable. VCs and investors have poured over $2.5 billion into blockchain games and infrastructure in Q1 alone. To get a deeper understanding of these investments and the most important trends for game dapps, metaverse platforms, and their underlying cryptocurrencies, stay tuned for the upcoming Q1 Blockchain Games Report in collaboration with the Blockchain Game Alliance. 


The first quarter of 2022 had its ups and downs but was tainted by the war in Ukraine. The biggest event since the 2008 Global Financial Crisis shook the world markets and had a negative effect on the industry. Nonetheless, the advantages presented by a decentralized financial ecosystem empowered by blockchain and the positive impact provided by the Web3 community were on full display. 

As adoption increases, technical flaws like the ones found in bridges become evident and are an enticing target for attacks. As proven by the $1.2 billion stolen in Q1, from which at least $900 million were drained from bridges. Security and regulations will become important topics to revisit throughout the year. 

Top NFT projects have proven to be a store of value. In particular Bored Ape Yacht Club by Yuga Labs stands out. The team has shown how a utility-driven project can become a leading Web3 brand in less than a year. The market for NFTs moves its way into the mainstream consciousness as digital brands and virtual real estate keep making headlines across the industry and into the mainstream.

Like NFTs, the DeFi space appears more consolidated. Terra has become a force in the DeFi space and will remain in the spotlight as the team implements an interesting collateralization strategy. Meanwhile, blockchains like BSC, Avalanche, and Solana will continue to develop their DeFi ecosystems, trying to challenge Ethereum’s and Terra’s dominance.

The game category continues to push blockchain adoption forward for the entire industry. It will become interesting to see how gaming will bring the wider blockchain industry together. We will see NFTs and DeFi embrace gaming as a catalyst for a wider audience. 

There’s no other target audience on the planet that has more experience with digital value and assets than gamers, setting them up as early adopters for DeFi and NFTs. Therefore the convergence between blockchain games, NFTs, and DeFi will be interesting to follow. After 2021 was reckoned as the year for NFTs, it looks like 2022 is shaping up to become a maturity period where gaming, NFTs, and DeFi come together in use-cases strongly tied to the rise of the metaverse. 

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