How blockchain users reacted to the crypto contagion and the latest macro events

How blockchain users reacted to the crypto contagion
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The Terra debacle became the Lehman brothers-like event sending shockwaves across the crypto industry.

 

As Terra – the then second largest DeFi ecosystem collapsed in May, it erased around $40 billion of VC and retail money. The blow applied heavy pressure on the entire crypto market, starting with Bitcoin and Ethereum, which had a spillover effect on the rest of the industry, also known as the crypto contagion. As a result, different parties were affected, with 3AC, BlockFi, and Celsius under the scope.

The DeFi landscape was undoubtedly the most affected blockchain vertical; thus, it is interesting to observe whether the user behavior changed from that perspective. Meanwhile, the NFT market shows a 67% decline in trading volume and 21% in the number of transactions since May.

Finally, the domino effect spilled into the traditional markets, where policymakers worldwide took notice and started drafting regulations to prevent such events in the future. In Europe, the Financial Stability Board ( FSB) will present its comprehensive regulatory proposal this October in front of the G20 representatives of the world’s largest economies. 

In the US, the Securities Exchange Commission (SEC) has already doubled the staff overseeing crypto-related markets and has multiple bills on the docket to regulate stablecoins. This report describes the most relevant behavioral trends affecting blockchain users over the last quarter.

The market has fallen deep into fear. According to the greed and fear index, we have fallen under 50% into the fear territory at the end of April and have remained there ever since. Only at the end of July do we see a glimmer of hope as the market sentiment behind changes. 

Source: DappRadar

Table of Contents 

Key takeaways 

  • Since Terra’s collapse, overall blockchain activity remains relatively on par, with a 1% drop in overall transaction count since Q1, while DeFi-related transactions have shrunk by 15% since May.
  • The overall average number of daily UAWs decreased by 12% since Q1. 
  • While NFT Trading Volume and Transaction Count have receded by a third from Q1, interest in regions like North America, Oceania, and some parts of Europe remains high. 
  • Axie Infinity is the top searched NFT collection in 112 countries
  • Blockchain games transactions defied the bear market and grew by 9.51% since Q1.
  • Investments into games and metaverse projects remain constant at $2.5 Billion invested in both Q1 and Q2.

Crypto adoption after Terra collapse and contagion

The collapse of Terra has profoundly affected the crypto markets. It is not an overstatement to say that this event will be remembered in the future and will continue to shape the markets for many months or even years to come. 

Terra has been a host for many significant investors from the crypto industry and outside of it. Among the top influential investors in Terra have been centralized platforms like Coinbase Ventures, Binance Labs, and Celsius Network. 

What compounded the problem is that one of the most prominent investors in Terra, Three Arrows Capital (3AC), has overleveraged its position by borrowing from lenders including Celsius, Blockfi, and Voyager, further increasing their exposure to the collapsing ecosystem.

Terra´s collapse brought down 3AC, which has since been forced to liquidate under chapter 15 but it also aggravated the financial strain on several lending (CeFi) platforms. As the investments of many retail and institutional clients began to devalue, many rushed to withdraw their assets, causing the lending platforms into a bank-run scenario. 

Since last quarter, transaction counts have fallen by 14.81% for DeFi and 12.2% for all NFTs. 

Blockchain games are the only vertical that managed to sidestep the ensuing bear market and increased their count in Q2 by 9.51%. 

Much like DeFi, NFTs have also been significantly affected by the collapse. Transactions volumes and sales count have dropped 32.66% and 30.34%, respectively, since Q1. The most significant drop happened in May,  transaction volume decreased by 67%, and the sales count dropped by 21%. The average amount of unique active wallets (UAWs) interacting with various NFT projects has also declined significantly by 24% since May.  However, the silver lining is that although the setbacks compared to Q2 of 2021, the activity is still up by 48%.

Despite a financial blow and undermined trust in the industry, investors remain bullish as the number of investments into blockchain games and metaverse projects has remained constant quarter-over-quarter, with $2.5 billion invested in both Q1 and Q2. June recorded the lowest per month investment with only $500 million. 

Besides the monetary loss, the developers felt a blow. The peak amount of dapps reached in April was 750 new dapps approved, after which a progressive decline occurred. May declined by 35% to 490 approved dapps. The drop of 8% in June reinforced the negative trend. 

Source: DappRadar

A more detailed analysis of the Quarterly performance can be seen in our Q2 Industry Report 

Polarizing attitudes towards NFTs around the world

At the end of 2021, the peak year for NFTs, they generated $44 billion for artists and traders. NFTs have been a very polarizing subject inside and outside the crypto community. There are plenty of lovers and haters with strong opinions on both sides. 

Part of the analysis tackles the social sentiment on Twitter. These attitudes have been recorded and cataloged by Joanna Burggraf from CashNet USA, where she analyzed the NFT market from different behavioral perspectives. 

The research found that, among the most NFT-friendly countries, Montenegro takes the number one spot with 86.2% positive tweets. Bosnia, Herzegovina, and Luxembourg share a close second place with 78% positive sentiment. Cuba takes the third spot with 71% approval.

On the other end of the spectrum, Poland ranks as the most NFT apprehensive country, with 23% negative posts. It is followed very closely by Nicaragua with 22% and Belize in third place with 19.3%.

Source: CashNetUSA

Another part of the same study examined which countries are most interested in NFTs.  The monthly Google searches relating to NFTs were recorded and expressed as a number per million inhabitants. The most NFT-curious country was Singapore, with 18,717 searches. Right behind it was Hong Kong with 15,213 results. 

Source: CashNetUSA

North America has the 3rd and 5th most NFT-curious countries; Canada and the US have 12,358 and 10,677 searches, respectively. 

Oceania and South Eastern Asia are the second most NFT inquisitive region, with Singapore(18,717), Australia(9,851), New Zealand(8,934), and Taiwan (8,078) as one of the most interested countries worldwide. 

Western Europe is generally interested in NFTs; Iceland’s the 4th most excited by NFTs with 11,194 searches. Other pro-NFT countries include Lichtenstein(10,677), San Marino (9,873), and Malta (8,810).  Among the larger countries, the UK(8,336), Netherlands(8,331), and Norway(8,031) lead European curiosity. 

Central European countries remain somewhat apathetic, with Austria(4,225), Germany(3,125), Czechia(3,562), and Poland(3,529) being of the lower scoring nations. Eastern Europe remains one of the most apathetic regions, with Ukraine(1,869), Russia(1,243), Serbia(1,700), and Moldova(811) as the least interested.  

The rest of the world seems mostly apathetic, with many countries in the Middle East, South and Central America, and Africa barely reaching over 1000 searches.

Venezuela(3,075), Chile(2,516), Mongolia(2,419), and Argentina(2,567) are the most interested countries from the rest of the world.

The comparative lack of interest can be explained by lower access to high-speed in some places worldwide. 

Furthermore, there are thousands of popular NFT collections; we want to outline the specific collections that dominate in different regions. 

Decetraland remains the most popular in North America, while Central and South American  American countries favor Axie Infinity, except Chile, which leans towards the Sandbox. 

Like in France, Italy, and Switzerland, many football fans in Europe, where Sorare tends to be very popular. While Austria, Germany, Iceland, Latvia, and Lichtenstein tend to favor Decentraland

The Middle East and Asia also tend to be split between Axie Infinity and Decentraland, where 80% of the countries prefer Axie except for Mongolia, Bhutan, Azerbaijan, Tajikistan, and Uzbekistan, which prefer Decentraland. 

Africa is a mixed bag with Axie, Decentraland, Sorare and Bored Apes, all having a significant presence in the region among the top searched collections. Only Seychelles seems to be the outlier and is primarily interested in Town Star NFT

Blockchain Games defying the market trend

Blockchain games continue to attract the curiosity and attention of people around the globe. In fact, according to the previous report, Axie Infinity is the most searched NFT collection in 112 countries. 

Following the same trend, blockchain games have been the least affected by the turmoil. The average UAW activity has fallen by only 7% since Q1, indicating that people continue to interact with blockchain dapps at a more or less the same rate as before the Terra incident.

Simultaneously, the amount of game-related NFT transactions has decreased significantly by 51% since Q1, and the sales volume dropped by 82%. Despite this, the year-over-year transaction count has increased by 19%. 

The activity has not affected all blockchains equally as well. The average drop in Blockchain activity has been 17%. The most significant loss was for BSC and Ronin, which lost 23% and 36% of UAWs since May.

Other chains like Solana and WAX paint a much more positive picture.  Wax increased by 6% since May, mainly owing to its vibrant gaming community, and the clear winner has been Solana which grew by 311%. 

Splinterlands remained the most popular game in Q2, with an average of  283,729 UAW despite a 16% loss in average activity due to the revamping of the reward system. 

The Alien Worlds is a beacon of stability and is still in second place with 188,116 average UAWs, a slight 4% drop from Q1. Farmers World, a wax blockchain-based game, has made significant gains of 33% since Q1 and is in third place with 124,422 average UAWs.

You can read more about Blockchain games in our Q2 BGA Games report. 

Looming Regulation 

As mentioned previously, many of the losses incurred by Terra have wiped out $40 billion worth of invested assets. The losses have been severe enough that financial regulators took notice.

Although North Americans and Europe handle the issue independently, they have acknowledged that the crypto markets require more transparency and oversight. 

Regulation is never warmly appreciated within the crypto community. Many hardliners criticize legislation as going against the core facets of crypto being autonomous and decentralized. Many fear that incoming regulation will stifle the creativity and freedoms that many in the industry enjoy. 

Source: Thomson Reuters 2022

On the other hand, security has been an increasing concern in the crypto space. Not a month goes by that a project doesn’t get the rug pulled, something gets hacked, or someone defrauded.

According to the rekt database, the last major fiasco happened with the Harmony bridge hack. As these incidents continue to undermine the trust of the public and investors, perhaps a little oversight could go a long way. 

At this stage, it is too early to estimate the scope of regulations until concrete proposals are introduced in Europe and the US. 

The FSB will present its comprehensive regulatory proposal this October in front of the G20 representatives of the world’s largest economies.

In the US, the SEC has already doubled the staff overseeing crypto-related markets and has multiple bills on the docket to regulate stablecoins. Meanwhile, the SEC will utilize legal frameworks where appropriate to govern crypto-assets.

We monitor the regulatory landscape worldwide closely at DappRadar, learn all you need to know about crypto regulations worldwide.

DeFi is adapting to a post-Terra world

The results are not surprising. DeFi has been given a raw deal and is the vertical that suffered the most this quarter. As stated previously,  most DeFi apps and exchanges have been forced to liquidate or are on the verge of bankruptcy. 

The average loss in TVL among all the blockchains has been -68%. In contrast, the transaction count has been steadily declining since the beginning of the year. The drop between Q1 and Q2 has been 14%. This trend persisted after Terra’s collapse, dropping another 14% since May. 

The month-over-month decline has been around 30% on average. Some outliers like Harmony lost 76% of its TVL due to the Harmony bridge hack. 

The third most popular bridge was hacked via compromised private keys. Although it is unclear what vector the attackers used to get hold of the keys, what many speculate was the vital issue is that the private keys were kept in plain text without any encryption, providing easy access for the takeover. 

Harmony was already one of the smaller chains that struggled to attract users. When the market sentiment was already dire, and there was growing distrust amid the Terra debacle, this could spell the end for the chain. Only time will tell. 

Year-over-Year results do not paint an uplifting picture, either.  Although the average is a decline of 30% across the board, the actual results tend to be very polarising. 

Ethereum is very close to the average and has lost 33% of its TVL since last year, while BSC and Polygon have lost 70% and 67% of their respective TVL. 

Source: DappRadar

The biggest loser is, of course, Terra. It lost 99% of its value, has a battered reputation, and one of its founders has been criminally prosecuted in Korea. Unless a miracle happens, the chain will most likely be delisted by the end of the year. 

Many smaller chains paint a more uplifting picture on the other end of the spectrum. Solana grew by 322% last year, while Fantom increased by 455%.  Despite being 80% down from its all-time high value, Avalanche is still 1329% up from last year. 

Ronin, the battered chain for Axie Infinity, is down by 92% from its all-time high. Most of that loss happened in Q1 due to the Ronin bridge hacks. Despite beating the devs for Axie, continue to support the project to turn it around. In June, the devs introduced the Origins update, which addressed many user issues with the game. The devs have also allowed many users to finally stake their lands to reap AXS tokens. These changes have increased Axie’s average UAW since May by 247%. 

Solana has attracted many NFTs and game developers mainly due to its cheaper transaction costs and faster processing speeds. A positive note is that the gas price, along with the transaction volumes, has also decreased.

The reductions in gas prices for Ethereum have not been able to outcompete with smaller chains. A recent gas snapshot illustrates over 54,000 transactions occurring on Solana at the $14 price point, and not an insignificant number of 13,000 occurs at a bargain price point of $3. It certainly explains the gain made on Solana. 

Other chains struggle to compete with the prices set by Solana as Polygon has only a 2.5% transaction of Solana at the $14 having only 1,369 transactions. It also has less than 1% at $3 with only 109 transactions. Meanwhile, BSC’s total transactions under $14 are barely above 20. 

Source: DappRadar

Demographics perspective

Using Dappradars traffic analytics, we can draw some conclusions about the behavior patterns of the markets. 

The United States remains the biggest audience for crypto. However, the numbers declined since May 38% since last quarter.  A distant second is India which has moved from the fourth since the final report, growing by 5% since May.

Russia slid to third place with the amount of traffic coming from it has remained primarily unchanged since last quarter. The UK has slid from third to fourth place since the previous quarter, and the traffic from the British Isles has declined by nearly 23%. 

The most significant decline has been from China which has reduced its traffic by 52%, although its position in the charts has not changed. The Philippines has traded places with Vietnam declining by 44%, while Vietnam has only slipped by a modest 16%.

Singapore has retained its 9nth position in the charts although the over traffic has declined by about a third. 

Lastly, Germany gave its place to Japan in the last quarter. Although the Japanese attendance on the side remains constant the german interest has dropped by 30% since last quarter. 

The gender dominance remained mostly unchained since the last quarter as men still maintain a roughly 80/20 split. This quarter the male audience has grown by two and a half percentage points. 

Source: DappRadar

The device usage also remains constant. Slightly over half of the users prefer to access the website via Desktop Computer, while somewhat under half are mobile users. The rest are tablet users. 

Source: DappRadar

The age disparity seems to have grown starker since last quarter.  The younger generations have represented a more significant audience share since the previous quarter. The Millenials aged from 25 to 44 comprise over half the Dappradar visitors with 52%, followed by the GenZ who are 24 and under are now almost a third of the website traffic. 

GenX or those aged 45 to 64 make 14% of the total traffic and have also grown by four percentage points since last quarter. Finally, the baby boomer generation represents the most significant changes in demographic as their attendance has dropped to 3%. 

Source: DappRadar

Closing 

It is becoming clear that the Terra debacle has become a Lehman brothers-like event that has sent shockwaves across the entire breadth of the crypto industry and aftershocks that will affect us for many months. 

It has been a giant financial blow in itself and coupled with the liquidation of 3AC; it has also done much to undermine the investors’ trust in the crypto industry.

All these event have attracted the attention of regulatory forces worldwide. It is unclear to predict the likely impact of regulatory changes for the industry.

It could be another Dodd-Frank-like scenario where the regulation will overhaul the entire sector, or it may be a slap on the wrist. Only time will tell. For many, the mere prospect of incoming regulations is the sound of alarm bells ringing.

Perhaps a little drop of poison could be the cure, and some regulation will go a long way to rehabilitate the industry’s image. As it stands now, it has become apparent that traffic and interest for crypto-related products are on the decline.

Although the highly inflated prices result from the generous cash infusion made by the Federal Reserve, which printed over 16 trillion dollars in under two years, the blame does not solely reside with them. 

It combines depreciating prices for many leading coins and tokens and the increasing frequency and severity of hacks and exploits. This crisis has highlighted many irresponsible practices employed by members crypto industry at all levels and across all verticals. 

It should be noted that while economic activity remains the saving grace, the industry has to sober up and abandon irresponsible behavior if we grow and prosper in the future.

Despite these trying times, the market activity remains steady, reporting only a slight decrease in average UAW activity QoQ, which declined by 12%.

Year-over-Year numbers paint a much more optimistic outlook as we have an overall increase of 62% in UAW activity. The transaction count still remains on par with only a 1% drop since Q1.  

Metaverse-related NFT projects are a beacon of hope as they reported an overall increase in  Trade volume and transaction count up by 97% and 27%, respectively. 

Despite the previously mentioned setback in NFTs, the global interest remains strong. Significant players like Disney and Paramount are entering the space and investing in NFT infrastructure. Gala has also broadened the utility of NFTs by branching into music and film. 

There are plenty of positive things to look forward to, but we must exercise caution going into the future.  

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