Dapp Industry Report: Q2 2021 Overview

Polygon surpassed Ethereum, Pancake drives BSC success, NFT sales numbers show signs of mass adoption.

The second quarter was an absolute rollercoaster but, overall, the positive trend in blockchain continues. Despite the crash in crypto prices, users continue to be involved within the industry, especially in DeFi and NFTs. New trends like the multichain paradigm appear to have a positive impact across networks.

Among blockchain protocols, the competition continued to heat up. During Q1 we saw Binance Smart Chain (BSC) establishing itself as a true DeFi referent thanks to dapps like Pancakeswap which enables yield farming with a very friendly user interface. With the announcement of its own marketplace, Binance will be now looking to replicate the DeFi success story within the NFT space.

It was Polygon who made the bigger strides in terms of adoption during this past quarter. Ethereum DeFi dapps such as Aave, Sushi, Curve, and several others have now been extended to Polygon, thus it isn’t surprising to see the sidechain grow by 13,000% year-over-year.

Ethereum itself continues to be as relevant as ever. Despite the striking drop in the ETH price, the network’s TVL surpassed $53.3 billion which is a 1% increase from the previous quarter. For instance, Aave, Uniswap, and Curve together increased 70.1% quarter over quarter.

On the NFT side, despite a cooldown in popular collections and marketplaces like NBA Top Shot and Rarible (-16.67% and -7.52% unique active wallets from the previous quarter respectively), Ethereum’s new set of NFTs, like the Bored Ape Yacht Club (BAYC) and VeeFriends, was positively received. The BAYC collection, which launched at the end of April, has attracted more than 100 UAW on average per day with almost $44 million USD in total sales volumes in June alone.

New manners of yielding extra value from NFTs are already in place. Virtual lands and in-game items are helping the NFT market back on track. Play-to-earn games like WAX’s Alien Worlds and Ronin’s Axie Infinity onboarded more than 250,000 unique active wallets each, solely in Q2.

Key takeaways

Polygon surpassed Ethereum with 73,000 daily unique active wallets, increasing 13,000% from the previous year; whilst also reaching more than $4 billion USD in TVL in Q2 2021.
Ethereum is still the top blockchain in TVL with more than $53 billion USD as it prepares for the London update.
PancakeSwap is driving BSC’s DeFi success with 2,13 million unique wallets in June; TVL increased by 32.8% quarter-on-quarter.
NFT space appears to cool down, yet in-depth numbers say the opposite; the amount of sales and daily average of unique active wallets spiked 111.46% and 151.89% respectively from the previous quarter.
Axie Infinity attracts more than 4,700 daily unique wallets increasing usage by 360.61% quarter-on-quarter; play-to earn-games might be the key to mass adoption.
Gaming explores DeFi advantages; Mobox reached over 22,600 unique wallets whilst generating over $57 million in total volume in June alone.

Significant movement in the blockchain leaderboard

Polygon, the sidechain, did not only make the biggest leap in terms of usage, but it has also reached an important milestone. With more than 73,000 daily unique active wallets, the network has surpassed Ethereum in Q2 2021. The number spiked by 13,000% year-on-year and was 845% higher when compared to the previous quarter.

Binance Smart Chain continues carrying its strong momentum. BSC has grown almost 2,000% in the last six months reaching more than 394,000 daily unique active wallets. WAX maintains a positive trend as well. Backed up with solid NFT and gaming projects, WAX attracted 384,000 daily unique active wallets, improving 556% quarter over quarter.

On the other hand, Ethereum saw a slight step back in terms of usage. The chain averaged more than 71,000 daily unique active wallets during the quarter which represents a decrease of 17.4% from the previous period. It will be worth watching how the dapp migration continues to shape the industry as more dapps seem keen to follow the trend.

Polygon driving the multichain paradigm

Issues like high transaction fees and low scalability have surrounded the industry for a while. In order to contrast those problems, premier DeFi and gaming dapps like Aave, Sushi and Aavegotchi decided to extend their features to Polygon, the perfect solution to this situation.

Since moving to Polygon, Aave’s TVL reached $2.11 billion USD on the sidechain alone. This amount represents 22.56% of total TVL considering Ethereum. Something similar happened with Sushiswap, where the TVL in Polygon now represents 20.4% of Sushi’s total TVL.

While it is too early to draw any conclusions, Polygon gives DeFi users an alternative to keep interacting with dapps like Aave and Sushi in a perhaps more efficient way. The more affordable and faster transactions might result in notable changes across the blockchains

**Source:** **DappRadar** **and** **DeFiLlama**

However, the list goes on; other important Ethereum DeFi players such as 0x, Kyber, and Curve have integrated or announced integrations into the Polygon ecosystem. The 0x API allows users to provide liquidity across integrated sources like Aave and Sushi. On the other hand, Kyber Network is about to launch the Rainmaker liquidity program, which is set to distribute $30 million in KNC and MATIC tokens that can be compounded further by staking on the corresponding Polygon pools.

While an Ethereum dapp migration to Polygon might seem smoother from the technical side, seeing BSC native dapps going multichain is appealing. Apeswap and Beefy are the latest projects to integrate with Polygon showing positive results early on. Apeswap, for instance, has already processed over 157,000 transactions from 11,880 unique active wallets, generating almost $85 million USD in volume during the last seven days.

Not only established DeFi projects are thriving in Polygon. Native dapps like Quickswap and Polycat Finance are helping the cause. Decentralized exchange (DEX) Quickswap has reached $1 billion USD in TVL, while Polycat Finance drove more than 36,000 unique active wallets in the last 30 days. In fact, approximately 29% of the network’s TVL is driven by Polygon native DeFi dapps.

DeFi value still concentrates on Ethereum

Ethereum has faced considerable challenges lately. Polygon and BSC have recently gained most of the media attention, and it is undeniable that Polygon itself has hampered Ethereum’s DeFi dominance by luring important dapps like Aave and Curve. Yet Ethereum continues to be the top blockchain in terms of TVL.

**Source:** **DappRadar**, **DeFiLlama** **and** **DeFistation.io**

With more than $53 billion USD in TVL by the end of June, the chain still controls more than 60% of this DeFi critical metric. It is worth noting that five DeFi dapps (Uniswap, Aave, Curve, MakerDAO, and Compound) represent 62% of Ethereum’s TVL.

Amongst the five aforementioned dapps, Curve improved the most in TVL, achieving an impressive increase of 151% from the previous quarter. In the same period, Uniswap, which represents 15.61% of Ethereum’s TVL, increased 62% reaching $8.3 billion USD. MakerDAO on the other hand decreased in 21.4% its TVL from the previous quarter, currently standing at $5.6 billion USD.

While it’s still too early to suggest a real outcome, Polygon undoubtedly attracted a share of Ethereum’s DeFi users; however, it is clear that DeFi dapps are still performing positively in the latter’s ecosystem. With more DeFi dapps expected to extend into Polygon or other blockchains, it will be worth monitoring how the DeFi Status Quo really unfolds.

Ethereum’s next move

Ethereum is preparing important changes in the structure of its transaction fees. Thanks to the EIP-1559 contained in the upcoming London update, the network will now employ two types of fees: a “fixed” fee which will be burnt after each transaction, and an optional fee that can be sent to the miner as a “tip” to accelerate a transaction.

In this way, fees or gas will be calculated based on live market rates instead of assigning variable rates resulting from bidding on the prices. Moreover, since fees resulting from this process will be burnt, Ether supply will be reduced thus becoming a deflationary asset.

It is curious that Ethereum gas fees are also on a year low as important changes loom on the horizon. Gas prices during Q1 float around 175 Gwei per transaction, probably sparking the migration of several DeFi protocols to Binance and Polygon. During the last month, ETH’s gas price was at yearly lows, getting as affordable as 17 Gwei.

The London upgrade on the mainnet is expected in Q3 once the three main testnets (Roepsten, Goerli, and Rinkeby) will have launched successfully. As Ether becomes deflationary, the asset becomes scarcer, potentially driving the asset price upwards. Only time will tell if the network is capable of regaining back the dominance lost in the last months.

BSC keeps thriving despite liquidations and exploits

Binance Smart Chain has performed extremely well since early 2021. Despite a massive liquidation that left Venus, a BSC decentralized money market, with $100 million USD in bad debt, the network saw its TVL increase in 39.5% quarter on quarter, reaching $26.2 billion USD.

Most of the chain’s success can be attributed to one single dapp though. PancakeSwap attracted more than 2.13 million unique active wallets in June alone, generating more than $863.5 billion USD in the same timeframe. The most used dapp across all networks surpassed $7.9 billion USD in TVL on average during the last month, increasing 32.8% quarter on quarter.

While Pancake is solidified atop the BSC ecosystem, a myriad of interesting projects are coming behind. Venus is the second largest BSC dapp in terms of TVL with $2.54 billion USD. It is impressive to see how the project recovered trust in the users after suffering such a negative impact with the liquidation.

Autofarm, Pancake Bunny, BakerySwap, and ApeSwap are amongst the most used dapps in the network. All of them were able to drive more than 50,000 unique active wallets in June, being Autofarm the leader with 712,000 unique users in the same period.

The features found in these dapps can be combined across projects and even other verticals, giving Binance a very complete and integrated ecosystem. In addition, important DeFi dapps including Curve, 1inch, Sushi, and Cream completed their extensions into BSC.

For instance, Bakery is an automated market maker that enables NFT trading on its platform. Using BAKE, the dapp’s governance token, users can go from receiving liquidity rewards to creating unique NFTs that are highly appreciated in the market.

All in all, BSC’s DeFi outlook looks promising. Current trends may indicate that the chain’s value proposition is not being driven directly from TVL at this stage. Aside from PancakeSwap, the total value locked in BSC’s projects is not astonishing. However, the wide usage of Binance native dapps is worth following. It is important that the involved dapps avoid incurring mistakes like the Venus liquidation or the Garuda exploit to keep a healthy and trustful ecosystem.

Binance eager to repeat DeFi success in NFT space

Whilst DeFi dapps continue their strong performance in the BSC network, the launch of the Binance NFT Marketplace is an enticing event for the whole industry. Binance already hosts interesting NFTs such as the DeFi collectibles found in BakerySwap which are being sold as high as $458,000 USD.

**Source:** **BakerySwap NFT Marketplace**

Binance Marketplace aims to incentivize both creators and traders with low fees and high speed. Digitized artwork from legends Salvador Dali and Andy Warhol are among the first collections to be announced, but more projects are coming. OG ESports, a professional esports team, has already announced its NFT collection on the marketplace. The Binance Marketplace is definitely something to monitor in the upcoming months, especially when they launch additional projects from arts, games, music, and much more.

In terms of sales volume and traders, Binance remains distant from NFT leaders like Ethereum, WAX, and FLOW. The stakes are high for this project as Binance tries to catch up in NFTs as well.

NFTs are here to stay

NFT mania that peaked in March appears to be over, at least according to Google Trends. The latest trends suggest that the euphoria generated by NFTs at the end of the previous quarter is cooling down. And while external factors such as the crypto price appear to derate this industry, in-depth analysis shows different results.

NFT sales volumes across some protocols have decreased from last quarter. For instance, Flow, which is mainly driven by NBA Top Shot, continues to dip in users and volume, decreasing in 16.62% and 66.87% respectively quarter on quarter. Although the basketball collection still leads the NFT space with more than 20,000 daily traders on average, it is far from its early year’s peak. Hopefully, technical improvements and an improved user experience will help revert the negative trend.

Another example is CryptoPunks. The Ethereum’s collection that transacted over $95 million USD by the end of last quarter, plummeted to a mere $16 million USD during June. Nonetheless, Punk sales are frequently among the most valuable, consolidating as a high-profile collection.

Based on the latest sales, those NFTs that provide owners with an added value or utility appear to be gaining steam. Virtual pieces of land and NFTs that unlock DeFi capabilities are becoming rapidly appreciated. The ceiling for metaverses, play-to-earn games, and the gamification of DeFi, or GameFi, is higher than ever.

While the sales volume appears to fall down, both, the number of sales, and the number of unique wallets suggest otherwise. In comparison to Q1, the number of sales spiked by 111.46%, while the daily average of unique wallets increased by 151.86% as well. Reaching more people is the path to mass adoption. Play-to-earn games, led by Axie Infinity are a key driver on this surge. With more than 62,000 unique wallets in the last 30 days, it appears that a wider, more mainstream audience has finally arrived.

The critics on the future of NFTs should remain silent, at least for now. Moreover, the mass adoption factor is undeniable. Consumers flock to brand terms over generic terms as they become more popular.

Ronin sidechain success – Axie Infinity

Axie Infinity stands as the top NFT in the dapp rankings in terms of volume. The Pokemon inspired dapp attained $84.1 million in transactional volume, which is 769% higher than Q1 2021. Moreover, Axie has grown 360.61% from the previous quarter reaching more than 4,700 daily unique on-chain users. The main driver behind these results is the move to Ethereum’s sidechain Ronin, which allows users to interact with the Axie universe gas-free. Moreover, the game itself already reached 295,000 daily players according to app data from Axie Infinity.

In addition, the Axie Marketplace also benefits from Axie’s activity. In fact, it trails OpenSea in volume reflecting the massive popularity obtained by the game. Axie’s marketplace transacted $108.5 million USD in the last 30 days (314.07% month over month).

It is worth noting that in emerging markets like the Philippines, where economic problems became more evident due to the pandemic, people found another income alternative by generating Smooth Love Potion (SLP) as documented by Emfarsis. These players earn SLP, the in-game currency, and sell it for local currency through centralized exchanges. Decentralized games may be the missing piece towards mass adoption of blockchain technology, empowering individuals equally across the globe.

NFT based games leveling up

The attraction of metaverse games can become an important catalyzer in the search for mass adoption. The previous section just detailed Axie’s current success as an earn-to-play game. However, gaming dapps from other protocols are not lagging behind.

In the volume visualization below, a massive improvement can be made by WAX. Most of it is driven directly by Alien Worlds, an innovative DeFi metaverse that combines unique NFTs and tokens with gaming experience whilst enhancing WAX’s own marketplaces like Atomic Market.

Alien Worlds has been constantly increasing its volume by combining DeFi features with in-game collectibles. NFTs in the metaverse include virtual lands (in different game planets) which may provide the owner with fees resulting from the in-game mining process. Moreover, TLM, the dapp’s governance token, can be used for staking and voting on game change proposals but is also needed to buy and improve game items.

Currently, Alien Worlds leads all gaming dapps in users with more than 225,000 UAW in Q2, which represents 1,087% from the previous quarter. The $13.8 million USD obtained in total volume represents a 1,397% QoQ.

The positive gaming trend extends to other blockchains like EOS and Polygon. Upland, EOS’s crown jewel, is also gaining traction in both usage and volumes. The virtual property trading game managed to increase unique active wallets by 46.68%, reaching 24,375 unique users at the end of Q2.

Aavegotchi switched from Ethereum to Polygon last March showing positive results. Although the unique active wallets have decreased 22.45% in comparison to March’s peak, the next expansion will be the launch of the Gotchiverse Realm, a digital metaverse world. With additional in-game mechanics, like mini-games, expect the pixelated ghosts to attract more users in the months to come.

Gamified-DeFi

With the surge of blockchains that enable faster and cheaper transactions, decentralized games can be upgraded by financial features to create unique ecosystems. GameFi combines the traits of DeFi, games, and NFT to create an entertaining option to generate passive income. Moreover, GameFi dapps allow players to get full control of their in-game assets so they can be utilized in different manners.

BSC’s Mobox is a recognized GameFi referent. It allows users to stake LP tokens or stablecoins to obtain rewards in the form of yield farming tokens called KEYs. KEYs can be used to unlock NFTs that can be used as playing characters or as staking assets in the MOBOX platform.

Mobox attracted over 22,600 unique wallets whilst generating over $57 million in total volume in June alone. It is too early to draw any conclusion but the future seems bright. If similar upcoming projects can replicate the success obtained by Mobox, the industry will probably look entirely different in a few months.

Ethereum newest collections

As mentioned in previous sections, users are looking to optimize the value of their digital assets. Nevertheless, incumbent collections are still a strong trend in the demand for NFTs. In fact, at least two Crypto Punks or Meebits were in the Top 5 sales during each month of this quarter. (see Top sales)

Although OpenSea, the Ethereum marketplace, dropped 47% in volume quarter to quarter, it looks like the trend is turning around. On a month-to-month basis, 46.24% and 5.32% increases in traders and volume respectively are encouraging signs.

New refreshing collections like Ethereum’s Bored Ape Yacht Club (BAYC), Punks Comics, and VeeFriends may be behind the latest push in the collectibles market. For instance, BAYC reached $40.1 million USD in sales involving 3,500 wallets in the last 30 days.

It is also worth noting that CryptoPunks and BAYC owners are about to be rewarded. The RTFKT platforms have already awarded Punk owners with real-life sneakers. The platform is looking forward to repeating the deed with other projects and incentivizing collectors with real-life clothing. The initiative really grants additional interest to the current collections.

All in all, Ethereum avatar collections are smoothly establishing themselves as high-profile collectibles. But perhaps more importantly, they are finding a way to generate additional utility into the physical world whilst remaining digital avatars.

Blockchain industry to become really crowded

While the DeFi and NFT scenes are currently governed by a limited number of protocols, several other smart contract blockchains are preparing their respective ecosystems to enter the race. It’s worth taking a look at some of them.

Algorand

Algorand’s Pure Proof of Stake consensus mechanism (PPoS) allows the network to transact over 1,000 tps. It has already been announced that Balancer will become Algorand’s first Automated Market Maker, paving the way for DeFi in this network. On the NFT side, Algorand aims at becoming a reliable source for verifying digital identities in the blockchain. An interesting NFT use case that hasn’t reached mainstream yet.

Cardano

According to PoolTool, Cardano has more than $31 billion USD worth of staked ADA from 667,456 unique wallets. One may think that, when DeFi is fully running on this blockchain, funds will flow from staking pools to DeFi instruments. However, ADA holders will be able to receive staking rewards while using ADA to supply liquidity. This is just one example of how Cardano might disrupt the entire DeFi ecosystem. Cardano is currently at the middle of its roadmap, but when everything is said and done, this blockchain will definitely be something to consider.

Polkadot

Polkadot is one of the most complex ecosystems in the industry. It is composed of a number of autonomous networks called parachains connected to the main blockchain called relay chain. Polkadot uses a Hybrid Delegated Proof of Stale algorithm. While Polkadot’s roadmap is currently underway, hundreds of projects are already building on top of the network aiming at the creation of a new generation of DeFi projects.

Solana

Similar to what happened with Polygon, Solana was one of the few protocols to resist the dip in crypto prices. By implementing a Proof of History into the protocol’s Proof of Stake consensus algorithm, Solana is expected to process around 50,000 tps. More interestingly, the network speed is also applicable to its smart contracts making this network the fastest smart contract blockchain in the industry. With the multichain paradigm at its best and more than 250 projects building on top of Solana, the DeFi space may be headed to another big shift.

Tezos

Tezos has three characteristics that make it unique. On-chain governance to avoid forks; a Liquid Proof of Stake which gives stakers and delegators the flexibility to combine different ways of using the Tezos token; and formally verifiable smart contracts that enhance the security of the blockchain. Overall, Tezos was created as an enabler of a secure and effective financial ecosystem. Moreover, it will be worth monitoring the performance of Hic Et Nunc, the Tezos NFT marketplace, in the upcoming months.

In-summary

DeFi and NFTs are thriving while cryptocurrencies not so much. Both verticals are finding a healthy balance in the blockchain industry by mixing different components in manners that attract more users.

The next months are going to be important for Ethereum. Binance and Polygon have both made big strides this year. BSC’s PancakeSwap was the most used dapp of the last month and Polygon feels now as the de facto sidechain solution for Ethereum. It will be worth watching how the London update affects as the DeFi ecosystem consolidates.

In regards to the NFT space, while there has been a negative perception coming from the decrease in sales volume, important indicators such as the number of sales and unique wallets suggest exactly the opposite. While play-to-earn games like Axie Infinity and new GameFi dapps are increasing their popularity, innovative collections like the BAYC and VeeFriends are providing the space with refreshing designs. Moreover, critical metrics like unique active wallets may finally indicate we’re heading towards mass adoption.

Finally, established blockchains like Binance and Tezos are making inroads into the NFT space. Adding another robust option like Featured by Binance makes the space more competitive and enticing. On the other hand, Tezos launched its own marketplace, Hic et Nunc in March. Focusing on sustainable art, HEN is a minimalistic platform that currently sits as the 5th marketplace in terms of usage and 6th in volume.

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