Dapp Industry Report Q2 2022 Overview

DappRadar Q2 Industry Report 2022
Other categories related to this article:
DeFi
Reports

NFTs and Web3 games keep enduring market conditions as shockwaves from the Terra collapse reach CeFi and VCs.

The blockchain industry is experiencing one of its most challenging periods amid the Terra debacle and the compromised situations by important CeFi and VC actors. Nonetheless, NFTs and Games paint a bright future for the dapp industry.

The dapp industry currently undergoes a harsh crypto winter accentuated by the collapse of the Terra ecosystem and the unfavorable situation that has affected some of the most renowned actors in the space, namely BlockFi, Celsius, and 3AC.

At the same time, this situation has shown the importance of self-custody in the Web3 space.

In June, the number of daily Unique Active Wallets (UAW) interacting with blockchain dapps reached 1.78 million on average, failing to surpass 2 million for the first time since September 2021.

On average, 2.11 million UAW connected to blockchain dapps during Q2, decreasing 11% from the previous quarter but still 62% higher than in Q2 2021.

Industry UAW(M) vs Bictoin Price (K, USD)
Source: DappRadar

Despite the bearish trend in the industry, there are a few silver linings to remain optimistic about the future direction of the dapp industry.

While the volumes on Ethereum are 40% down from the previous quarter, the sales count increased 2% over the same period signaling that the demand for digital assets increased during the last three months.

Likewise, the number of Solana NFT trades doubled from Q1, while the trading volume increased 23% in the same timeframe. At the same time, blue-chip NFT collections keep making their case to be considered a safer asset class than cryptos themselves. 

Finally, blockchain games keep painting a bullish future by attracting record VC investments and a consolidated player base despite the falling game-based token prices. 

Key takeaways

  • The crypto market cap has lost 34% since Terra’s debacle, falling from the $1T mark for the first time since January 2021.
  • Liquidity crunches across leading CeFi platforms remark the importance of self-custody; 3AC files for bankruptcy, injecting more fear in the markets.
  • DeFi’s TVL is estimated at $70B, 69% less than the close of Q1 and 33% down from one year ago; Ethereum’s dominance grows to 69%, with $48B locked in its contracts. 
  • The market cap for Ethereum’s top 100 collections in terms of ETH surpasses 6 million ETH, growing 7% amidst a 72% collapse of ETH’s price. 
  • While Ethereum’s trading volume is down 40% from Q1, the number of trades increased by 2%; Solana’s trading volume is up 40% from the previous quarter while the trade counts doubled.
  • NFT blue-chip collections appreciated in June, proving their status as assets capable of storing value.
  • $676 million worth of crypto assets were stolen during Q2; blockchain bridges are still a prime target, with $100 stolen from the Horizon bridge in June.

Contents

How the collapse of Terra altered the blockchain landscape

On May 7, the blockchain industry witnessed how Terra – the then second-largest DeFi ecosystem was halted, leaving $40 billion in dead money and hundreds of dapps without a host network. 

The third-largest stablecoin before the crash (UST), lost its peg to the dollar, forcing the Luna Foundation Guard (LFG) to take some actions to help the stablecoin regain its peg to $1. However, those would come with a hefty price to the entire industry.

First, LUNA, Terra’s governance token that guaranteed the stability of UST, came crashing down as the stablecoin lost its peg to the dollar. The price of LUNA, a top 10 cryptocurrency before the debacle, plummeted by 99%, erasing $27 billion in hours as the token supply was minted to infinite. 

Also, it is worth remembering that during Q1, Do Kwon – Terra’s co-founder, kickstarted a motion to collateralize the ecosystem with $3.5 billion in BTC to support UST in case of a stress period.

Thus, as the LFG sold 80,000 BTC, it created enough sell pressure for Bitcoin to lose 23% in the days after the Terra crash.  

The Terra collapse sent shockwaves across the entire crypto market, provoking a high volatility period. The cryptocurrency market cap lost 34%, from $1.75 trillion to $1.15 trillion. At the time of writing, the figure fell below $1 trillion ($875 billion) for the first time since January 2021.

Source: DappRadar

Moreover, algorithmic stablecoins, including USDN, VAI, and FEI, lost their peg to the dollar, with only the latter recovering its intended levels. During June’s market crash, Tron’s USDD and Abracadabra’s MIM lost their peg, too, adding more uncertainty to this asset class. 

The collapse of the Terra ecosystem tainted the markets with fear and accentuated a crypto winter that originated from the complex macroeconomic scenario. It also hindered DeFi’s reputation among mainstream investors, reinforcing the idea of crypto being too risky. 

The implications of this situation made clear that regulations are needed. Anonymous recently posted a video targeting Do Kwon while South Korean authorities keep investigating TerraLabs co-founder.

The Terra event left thousands of retail investors in a dire financial position, while some of the most renowned names in the crypto industry were also severely compromised.

Hashed, a VC type of organization, lost around $3.5 billion in Terra assets. Simultaneously, other big names, including Jump Crypto, Coinbase Ventures, Polychain, Tribe, Binance, and Three Arrows Capital (3AC), were also affected with unknown quantities. The latter may have more significant implications for the entire industry.

Liquidity crunches across leading CeFi players

Since the Terra debacle, the leading centralized crypto lending platforms (CeFi) have faced severe challenges. Citing extreme market conditions, these CeFi firms paused customer withdrawals and transfers between accounts. The situation arises as a result of these platforms running short on liquidity. As the fear in the market continued, customers urged to get their funds back created a scenario similar to a bank run, where the lending entity is compromised due to a lack of liquidity to cover their customers’ requests.

On June 13, Celsius became the first CeFi platform to pause customer withdrawals. As previously mentioned, the bank run effect caused by high volatility market conditions saw users trying to withdraw their money from the exchange where there was no liquidity to cover these obligations. To make matters worse, Celsius has over 400,000 staked Ethereum (stETH) worth $475 million managed through Lido. However, at the current 0.94 stETH/ETH ratio, the lending company is on the losing end, trying to cover its obligations in ETH.

It is worth noting that Celsius has also incurred significant losses in the past, losing the keys to  35,000 ETH staked in Stakehound and, of course, the $54 million loss in the Badger DAO exploit the last December. Interestingly, Celsius token CEL has appreciated 225% since the announcement as an effort from CEL investors to put pressure on short-sellers, similar to GameStop’s GME. 

Days after Celsius halted customers’ operations, BlockFi, another industry-leading CeFi platform, underwent the same process.

However, contrary to Celsius, which is still battling against a potential bankruptcy, BlockFi was bailed out by the Bahamas-based cryptocurrency exchange FTX with a $400 million credit or the $250 million sale option, giving a glimmer of hope to its user base. 

In addition to Celsius and BlockFi, Babel Finance, Voyager, Coinflex, and Hodlnot are other CeFi players facing liquidity challenges amid the high volatility of the bear market. 

This scenario should serve as a reminder that self-custody has never been more critical in the Web3 space, where DeFi will play a prominent role once the dust of the Terra collapse settles.

3AC could deal a black swan effect to the crypto markets

Three Arrows Capital has been one of the most prominent investors in the blockchain industry. At one point, its asset under management (AUM) surpassed $10 billion with investments in Layer1 blockchains, including Terra, DeFi protocols, centralized crypto equity companies, NFTs, and Web3 games. However, everything has been reduced to substantial debt. 

In February this year, 3AC bought around 11 million LUNA worth $560 million, a position worth less than $700 at writing. To add fuel to the fire, 3AC placed a significant position in stETH, from which 30,000 stETH were sold days later. 

It has become clear that 3AC was widely over-leveraged, especially after Terra’s collapse. The VC group failed to answer the majority of its margin calls, including BlockFi and Genesis, falling into liquidation and putting any hope of a potential crypto rally back to rest. 

Another primary concern is the amount of seed capital invested by 3AC in projects like Avalanche, Aave, dydx, and many more may have a trickle-down effect down the line. 

Once 3AC is legally required to cover obligations, the cryptos native to these protocols will probably suffer severe sell pressure. 

What was thought to be one of the premier crypto investment funds turned out to be an overleveraged project with poor risk management. 

Recently, it has been announced that 3AC has filed for chapter 15 bankruptcy which prevents creditors from seizing a company’s assets. It looks like it’s just the start of the 3AC novel. 

Source: DappRadar

TVL back to 2021 levels

Terra was a burgeoning DeFi ecosystem with over $29 billion in TVL led by its native Anchor protocol. Unfortunately, the collapse of the South-Korean blockchain created a seismic shift in the DeFi landscape. 

First, the TVL fell to levels not seen since the start of 2021. At writing, Defi’s TVL is estimated at $70 billion, 69% less than the close of Q1 and 33% down from one year ago. 

The crash in the price of underlying cryptos is the biggest driver behind the downfall, but it is fair to say that the enthusiasm for DeFi has been falling too.

Source: DappRadar

Ethereum remains the most dominant chain and has improved its dominance to 69% with $48 billion, 11% higher than the close of Q1. BNB is once again the runner-up with $6 billion in TVL, but it remains in a very different position than in Q1 2021, where it held 20% of the industry’s TVL, compared to its current 8%.

Polygon, Solana, and Avalanche follow the Binance-branded blockchain closely and should remain among the top DeFi destinations in the future. 

Top 10 DeFi Dapps Total Value Locked
Source: DappRadar

On a higher note, it is positive to see the rise of Arbitrum as the leading Layer2 (L2) DeFi solution. Arbitrum is an Ethereum L2 offering features of Uniswap, Sushiswap, Curve, and GMX. It is also worth monitoring Optimism, Near, and Gnosis’s performance.

Security should remain a focus – $676 million was stolen in crypto assets during Q2

After the downfall of the Ronin bridge exploits, we issued a report in April explaining how blockchain bridges became a prime target for crypto hackers. And yes, it happened again. 

The Harmony’s Horizon bridge that connects its native network to Ethereum was exploited due to a lack of security surrounding its multisig procedure. Only two signatures were required to approve transactions, inconceivable low-security practice for such an important bridge. 

A similar story occurred with Ronin’s bridge when the infamous Lazarus group drained $600 million from it. 

Early in February, the Solana wormhole was exploited for $325 million, while in August last year, Poly Network lost $600 million that was later returned by the attacker. Bridges will continue to be targeted by hackers with the current security thresholds. 

All four of the top 13 thefts in crypto history happened in June. A total of $676 million were stolen in crypto assets during the last three months. Elrond’s dapps Arda and Maiar were exploited by $127 million and $113 million respectively in June, according to the Rekt database

It is utterly relevant for DeFi dapps to enhance their security measures to protect users and their reputation. 

Demand for NFTs up despite volume slump

The NFT market has been on a rollercoaster ride this quarter. On the one hand, the heavy pressure from macroeconomic trends and the fallout from the Terra debacle have hindered NFTs’ performance. Nonetheless, NFTs are weathering the storm quite well.

What is more, looking at a broader timescale, the yearly performance is staggering. Overall trading volume and sales count are up by 533% and 59%, respectively, from Q2 of 2021. 

Although OpenSea is the premier NFT trading platform, its share has declined with the emergence of marketplaces like LooksRare, x2y2, and Solana’s Magic Eden.

The decline in trading can be attributed to the drop in the market value of cryptocurrencies and rising competition in the NFT trading landscape. 

However, while the marketplace’s volume measured in USD has fallen around 70% since May, the volume in ETH is down by 55% in the same timespan. 

NFT Organic Trading Volume
Source: DappRadar

Furthermore, OpenSea’s trading decline should not be seen as an indicator of the entire NFT market downfall. The market cap of Ethereum’s top 100 NFT collections has declined due to the depreciation of ETH, which has dropped by 63% since the beginning of Q1. 

Still, the NFT market has responded uniquely to the bear trend. The NFT market cap figure mentioned above in terms of ETH has been growing consistently to compensate for this decline.

It went from the low point of 3 million ETH in October to its peak in April, reaching 6 million ETH. Currently, the market cap is over 5 million ETH, an 8% drop since April but a 20% increase since May.

Source:DappRadar

Metaverse-focused NFTs had a good quarter. The trading volume for ETH-based collections has increased by 101%, while Polygon collections have unfortunately declined by 26%. Overall it has been a growth of 96%.

Year-over-year, the stats look even more impressive as Ethereum-based collections have grown by 2093% while Polygon grew 456%, with an overall increase of 1999%.

While Blockchain games have been quite resistant to turbulence, the game-based NFTs have not had the same luck. The trading volumes have declined overall by 82%, with most chains suffering a pullback, the worst of which happened on Ronin by 84% and Ethereum, which lost 88%. 

Summing it all together, we saw an overall mixed landscape in terms of performance. Solana and Avalanche emerged as the clear winners with an increase in trading volume (despite the crypto pullback) of 21% and 15%.

Incumbent blockchains such as Ethereum, BSC, and Polygon suffered heavy losses of 41%, 22%, and 59%. While absolute, the low point was reached for Flow and Ronin, which saw a pullback of 71% and 84%. 

Despite the depreciation of many tokens, the trading activity persisted on many blockchains. Solana, again as the clear winner, almost doubled its sales count by 98%, while Ethereum and BSC stayed pretty much on par with 2% and -4%, respectively. The same could not be said for the rest of the blockchains, which suffered losses of up to 75%. 

Looming NFT marketplace wars 

This quarter has seen significant developments in the NFT industry. We had previously established that despite the pullback in USD values, the trade count and trade volume in ETH had not been drastically affected. To many investors, this is a bullish indicator to double down on this burgeoning yet lucrative industry to many investors. 

Ethereum’s leading decentralized exchange (DEX)  Uniswap has acquired NFT aggregator platform Genie. Aggregator platforms accumulate NFT offers from various trading marketplaces across all chains to have a holistic view of the NFT market and to have all your trading needs met in one place with reduced gas fees. 

Uniswap has long positioned itself as Ethereum’s defacto market maker. This acquisition will allow the DeFi protocol to round out its product offering to include a significant part of the crypto market that has previously been absent.

As a bonus to bolster traffic to the platform, users who interacted with Genie before April 15th of this year will be entitled to some USDC which they can redeem for up to 12 months. 

Source: DappRadar

As mentioned before, while OpenSea is still the leading NFT marketplace, its market share has diminished. To stay competitive, OpenSea has continued to improve its service with the launch of Seaport. This advanced trading open-source protocol enables trading multiple NFTs at a time.

Furthermore, they have begun offering Solana-based NFTs and recently purchased NFT market aggregator Gem. While Gem will be its own platform, OpenSea plans to use its expertise to improve its services and retain its leading position. 

These acquisitions will most likely pit OpenSea and UniSwap in direct competition with each other soon. While many have criticized OpenSea for becoming ‘’too centralized’’ due to its commanding market share of 75% of the NFT marketplace, it will undoubtedly battle hard against the rising competition. 

Finally, a move that came like a bolt from the blue was eBay’s acquisition KnownOrigin. eBay, the giant online marketplace, has also expanded its digital goods offering. 

Although Ethereum has historically been the primary blockchain for NFTs, Solana has been growing as a viable alternative for new NFT projects due to relatively low gas fees and low barriers to entry. 

Magic Eden, the leading marketplace for Solana-based NFTs, has seen a record influx of traders due to the launch of many successful Solana-based collections like Okay Bears. The Solana marketplace dapp boasts 0% listing fees and only 2% trading fees. This quarter Magic Eden accounted for 10% of all NFTs transactions. 

Blue chips recover lost ground

Many blue-chip collections have seen a drastic drop in value. The BAYC floor decreased 38% from April 30, falling from 150 ETH to 90 ETH. MAYC lost 57% in the same period and traded for 17 ETH.

A similar situation arose with Doodles, which after launching Dooplicator, saw its price decrease by 48% from 23 ETH to 12 ETH.

This pullback has been a combination of macroeconomic trends related to the recession in the capital markets and the release of new projects like Goblin Town and Moonbirds, enticing many to sell their legacy NFTs to acquire new ones.

Project-specific debacles like the outing of the Azuki founder as a serial fraud have further undermined the confidence in NFTs.

There was, however, a sudden recovery on the weekend of 18-19 June, where many collections appreciated suddenly before the NYC NFT convention. During this resurgence, Meebits floor price grew by 76%, Doodles and CryptoPunks recovered by 44% and 43%, and BAYC grew by 24%. 

Virtual Worlds hit the hardest

Virtual worlds, which have been riding high since last November, have been systematically on the decline since then. The situation changed drastically when Bored Apes released their highly anticipated land sale accompanied by the native APE token.

Otherdeeds sold out within hours of being released. The release of this collection single-handily revived the Virtual Worlds, generating over 150k ETH or $420 million, market pushing the monthly volumes from $116 million to $616million, a 431% increase.

The launch was not without fault. The mint congested the Ethereum network pushing gas prices into the thousands. Millions of dollars were lost due to failed transactions. However, Yuga labs compensated the damages to those unable to mint their lands. The release has also propelled Apecoin, the native token for other deeds, to 380$ million market cap.

Unfortunately, the Virtual worlds market could not bear the storm as many native tokens of virtual worlds like MANA, SAND, and ENJ lost up to 82% of their value.

Despite the bearish trend in the markets, the digital real estate market has posted some positive metrics. Seven out of the top 10 NFT sales in May belong to the Otherside collection, with Otherdeed #24 netting 333 ETH worth $1 million.

The floor price of TSB and Decentraland’s plots have gained 30-40% since the start of the month. Moreover, VC investors remain bullish on the prospects of this industry, committing over 4.6 Billion USD to the development of Metaverse projects and infrastructure. By some very optimistic projections, according to Citi, the metaverse industry is set to grow to a 13 trillion dollar industry by 2030. 

NFT Collections continue to innovate

Despite the bear market and its accompanying drop in prices of many major cryptocurrencies, we saw groundbreaking collections that broke historical records and defied many orthodox practices that define NFT projects.

Our first breakthrough came in April with Moonbirds. A collection that amassed a record trading volume of over 100,000 ETH or one Trillion USD at the time that we covered it in our Dapp Report.

The collection owes much of its success to the grassroots approach to community building. The project started as a community around the Proof Podcast hosted by Kevin Rose examining NFT.

As the polarity of the podcast grew, Rose used his know-how and connections to talented developers to make a collection that focused on delivering value to long-term holders instead of flippers. The collection offered holders to soft-stake or ‘nest’ their Moonbirds to receive more rewards in the future.     

Furthermore, we have seen major success for Solana-based NFTs with the launch of Okay Bears. A collection that was one of the highest-grossing collections on Solana at the time and had a floor price appreciation of 11,500%, the highest on all of any Dapp Reports. 

There have also been collections that have completely defied our traditional understanding of what can constitute an NFT collection. 

Ethereum Name Service was a utility feature that allowed users to purchase domain names on Ethereum and host content such as wallet addresses or websites.

Each domain name was essentially unique, and they functioned like NFTs. Since numbered domains from 0 to 9999 were limited, people began minting, purchasing, and building a community around them, unofficially creating the collection dubbed the 10k Club. 

We also had Goblin Town. A collection that flipped the script on the entire NFT project process. At launch, it had no roadmap, no Discord, no data on the developers, and the mint was free save for the gas fees.

It did have an official site with many hidden clues about the project and a small interactive mini-game for those who had a Goblin in their wallet. This led many to speculate this was a secret Yugalabs or Gary Vee project to the unusually good project launch and production. 

Source: DappRadar

Blockchain games keep painting a bullish future

Blockchain games continue to perform well. This blockchain vertical had a 5% decrease in UAW compared to the 26% felt by the rest of the industry. This is a bullish indicator for blockchain games as many have speculated that game dapps would lose most of their player base if they stop being financially profitable to the average user. It was proven not to be the case. 

Spliterlands continued to be the most played blockchain game for the 8th month in a row with 350,000 daily active wallets with a slight drip of 4% compared to the previous month.

Other usual candidates such as Alien Worlds and Upland are among the top five most played dapps with a loss of 5% and a gain of 4% in the monthly UAW, respectively.

Gamified fitness dapps started the Move-to-Earn (M2E) trend and took the market by storm. STEPN is a jogging app that tracks people’s movement and rewards them as they complete goals set by their NFT sneakers.

The app registered over 2 million monthly users, while many saw this as an investment opportunity, with over 262,000 wallets holding the native GMT token.

Other similar projects include Genopets, Step App, and DotMoovs, which expand on this idea in various ways to entice an active lifestyle with token rewards. 

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.

Top 10 Game Dapps

Closing

Without question, the blockchain industry is undergoing one of its most challenging periods. The collapse of the Terra ecosystem and the domino effect felt across the interconnected industry could mean additional hurdles to the already complex macroeconomic scenario.

The debacle of LUNA and UST created enough sell pressure to bring down the price of BTC, dragging down the entire crypto market. Similarly, there’s a chance that the selling pressure applied by 3AC and Alameda by liquidating large stetH positions contributed to the Celsius downfall.

Nonetheless, the dapp industry’s outlook remains bullish. The adoption of blockchain games continues to consolidate while the NFT market keeps evolving.

The market for virtual world NFTs experienced one of its best quarters. And even though the trading volumes measured in USD are at a one-year low, the demand for Ethereum NFTs moves in the opposite direction.

The rise of Solana as a network where NFTs are thriving is another optimistic scenario. Moreover, seeing blue-chip NFT projects hold or even gain value amid the negative downturn is the latest proof that NFTs are here for the long run.

Despite the negative sentiment across the market, there are reasons for optimism. Networks like Cardano and Ethereum are close to reaching important milestones that will signify an important push for the industry as a whole.

Meanwhile, regulators accelerate their policy-making process as security is still one of the most significant risks present in today’s space.

Share this post on social media

Share this Article

Related articles

Related articles

Blockchain Industry Expands 509% in a Year

1.54 million user wallets connected on a daily basis in Q3 2021
Blockchain Industry Expands 509% in a Year