Dapps stay relevant amidst price crash
While cryptocurrencies lost 16% up to 50% of their value in the past week, decentralized applications on the blockchain are thriving.
The writing would appear to be on the wall as cryptocurrency prices continue to slide downwards. Last month’s correction appears to have pushed us into a full-on bear market. But amidst all this doom and gloom DeFi applications across popular networks such as Ethereum, Polygon, and BSC are all peaking. In the last 7 days, BTC has lost almost 16% of its value whilst ETH is down almost 22%. In the alt sector, things are even worse. Polkadot and the infamous DogeCoin are both down 32%.
The correlation however between crypto prices pumping and dumping and the usage of finance applications is not as clear cut. In a nutshell, despite token fluctuations, dapps retain their usefulness and we are seeing that in the metrics provided by DappRadar. A lot of this activity is of course being generated by people having the ability to leverage their holdings in a downturn. As opposed to early 2018 when choices were limited and most just either sold or held on to their tokens.
As the gold standard of cryptocurrency, the markets tend to follow BTC. The price of BTC took its first hit on the 23rd of May when the price fell to around $32,500 after peaking over $60,000 a few weeks earlier. Since that time we haven’t seen much to get excited about.
One month on it’s interesting to see how top DeFi applications have performed amidst these market conditions. As mentioned before, the sheer volume of applications and available services now compared to the last market crash should mean investors can still earn in a downturn. It is also interesting to see which newer networks are winning as Ethereum battled with overly high gas fees. Which appear to have now normalized.
It is important to recognize that transaction data tracked in these apps can constitute buying, selling, staking, and more actions. It’s important, as apps may appear to be peeking, but the actions can be selling, which isn’t especially good for the market. Either way, the application is being used and that’s what we are most interested in.
Firstly let’s look at finance apps operating on Ethereum. For this instance, we will look at two leading protocols providing financial services on Ethereum – Uniswap and 1inch.
Both have maintained a fairly constant flow of usage throughout the month. The leading exchange on Ethereum is Uniswap. The DEX has seen an average of around 60,000 daily unique active wallets. Whilst 1inch, a token swap aggregator has maintained a strong average of around 3,500 daily active wallets. Although we do see decreasing numbers as we head into July. Not a complete drop off the cliff at the end of May like BTC or ETH prices. Indicating that dapps still found themselves in demand despite the drop in crypto prices.
Whale activity, or in non-crypto language wealthy investors, tend to operate on Ethereum. As the oldest home of dapps operating smart contracts, it is also considered the safest and best, despite fluctuating gas fees. The audience of these dapps appears to stay loyal. Even in a downturn.
Secondly, we will look at two leading finance applications on the fast-rising Polygon Network – Beefy Finance and Quickswap.
The story on Polygon is different. Not one of maintaining activity, but of growth, then decline. Alternatively, as mentioned, activity can be stimulated by new yield farms, rewards, and offers from dapps. Once invested the user has no real utility to come back. DeFi dapps on Polygon got a boost from fast transactions and extremely low fees as Ethereum dapps almost became unusable. Investors wanted to make moves and Polygon gave them the options they needed.
Quickswap appeared to excel during the worst times. Going from 13,539 active wallets to a peak of 43,541 on the 17th of June. Then we see a drop. The same is also true for the yield farm optimizer Beefy Finance. A flurry of activity started roughly as crypto prices plummeted. Active wallets grew from just over 600 on the 24th of May to 7,137 by the 16th of June. Both surges coincide with activity on the applications to drive users into staking or providing liquidity. We may see another peak next month as users come back to harvest their yields or simply perform further actions. Alternatively, the drop can coincide with a further fall in prices seen in the last 7 days as newer crypto users lost the desire or means to operate.
It does seem odd that both dapps have suffered a massive drop in unique active wallets around the same time. It could be the case that DeFi dapps running on the Polygon network are simply more susceptible to price fluctuations than those on Ethereum due to the nature of its user base. Looking at the BTC chart below it would appear to be the case. The price of BTC started to fall around the 16th of June, the same time activity dropped off these two leading Polygon DeFi dapps.
Binance Smart Chain
Lastly, we consider the top DeFi applications operating on Binance Smart Chain. Here we will look at ApeSwap and PancakeSwap.
BSC made a name for itself in the first quarter of 2021. The Binance funded blockchain racked up more transactions than Ethereum at the peak of the bull run. Arguably playing a big part in bringing in lots of new liquidity to the crypto space. Furthermore, Binance is long in the game, they are well used, and people respect the platform. Of course, some don’t.
Here we see activity more in line with that on Ethereum. Steady, with a slight reduction now token prices have started to drop. PancakeSwap is the leading DeFi dapp on BSC and racked up an average of 291,000 daily unique active wallets in the last 30 days. ApeSwap is a newer, but equally popular platform and saw an average of 7,790 daily active wallets. Both appear to be weathering the storm and both were well positioned to offer services to users in a downturn. Unlike the drop observed on Polygon, leading DeFi apps on BSC appear to have maintained their audience. Arguably, they had their firm attention before any of this began.
We observe that finance dapps across leading networks stay relevant and used during a market downturn. Investors are using them to either sell unwanted tokens, buy the dip or leverage their current assets for a yield.
As someone who experienced the last major market downturn there does appear to be far more positivity this time around. Probably set up by the fact we are now more educated about crypto and that we have more historical data to work from regarding price swings and market cycles. Yield farming and staking have come to the fore as a healthy alternative to holding tokens and as a result, DeFi dapps are winning.
The story on Polygon is fascinating, will we see user activity bounce back? Or was the network a fly-by-night necessity to deal with high gas fees? Either way, it’s fascinating to see a truly multichain paradigm come to the fore.