User activity is down on the leading network
The number of unique active wallets connecting to dapps on Ethereum has dipped considerably in the last few days as layer-2 networks such as Ronin, Fantom and Solana saw increases. Moreover, BNB Chain is way out in front with over half a million wallets a day connecting to its dapps, compared to Ethereum’s 75,000 daily average.
Despite BNB Chain’s commanding lead in users connecting to its dapps it’s vital to remember that Ethereum holds more than $116 billion in token value in its smart contracts while BNB Chain dapps hold around $13 billion. The age-old question of quality versus quantity appears to be ringing true as Binance fights to attract high rollers.
However, wallets connecting to Ethereum dapps have fallen dramatically in the last seven days, from a high of more than 168,000 on February 20 to less than 94,000 at writing. Macro events are playing their part, but a noticeable shift to activity on networks outside Ethereum is present. Layer-2 solutions and sidechains have become more relevant as users look for cheaper, faster, and more eco-friendly alternatives.
Layer-2 networks show resolve
While user activity on Ethereum appears to decline these last few days, layer-2 networks and sidechain solutions like Polygon, Solana, Fantom, Avalanche, and Cronos gained ground. These platforms all fought hard to take relevance from Ethereum in the previous 12 months and attract more users. These networks allow users to trade tokens and generally perform all the same actions when using Ethereum dapps, but for a fraction of the cost.
It’s important to note that the difference between a sidechain and a layer-2 solution is one of a technical nature. Nonetheless, both take user activity away from Ethereum and require users to bridge their assets from one blockchain to the other. It’s the security element and finality of transactions that determine whether a blockchain system is Layer-2 or a sidechain.
Wallets connecting to Ethereum dapps dropped from around 108,000 to just over 93,000 from February 27 to 28. Conversely, Solana saw an almost 8,000 increase while Avalanche saw a 6,000 lift in the same time frame. The Polygon Network is second to BSC with a commanding lead over Ethereum, which it has maintained for most of February.
The number of wallets connected to the layer-2 networks highlighted above increased approximately 10% from February 27 to 28. Coinciding with an uptick in general cryptocurrency values as traders became active again. BTC is up more than 17% in the last seven days and almost 14% in the previous 24 hours, once again trading above the critical $40,000 line.
At the same time, wallets connecting to Ethereum dapps were down over 20%. Suggesting that traders, during a down market, are now more engaged with layer-2 network dapps. Especially those on BSC and Polygon. Something which only reflects a general activity shift away from Ethereum in 2021, as the network became clogged and expensive as countless NFT collections launched every day.
Ronin Flips Ethereum
In the last two days, more wallets have connected to dapps on the Ronin blockchain than Ethereum. This is most interesting because DappRadar only tracks three Ronin dapps compared to more than 3,000 Ethereum dapps. At writing, one game and its ecosystem attract more user wallets than all the dapps on Ethereum combined. Notably, a trend that held for most of February.
Of course, Ronin is the custom blockchain of the leading play-to-earn game Axie Infinity, its marketplace, and Katana DEX. Ronin continues to build on the success found last year as blockchain games lead the industry—consistently more than doubling the number of users of DeFi dapps in February 2022.
What does all this mean?
We use the term active wallets repeatedly because we refer to the number of user wallets connecting to a dapp. A metric used in a similar way to daily active users in the mobile app world, while understanding the nuance that one person can have more than one blockchain wallet. Simply put, wallets connecting indicate usage and potential growth.
While Ethereum currently stands tallest regarding the value stored on the network, other networks are chasing it with conviction. However, to make considerable gains, these networks’ dapp ecosystems must grow further and attract more value. Layer-2 networks that tap into the security and underlying technology of Ethereum while allowing cheaper transactions appear to be making considerable gains in 2022 as users become increasingly aware and educated on how to access and use them.
As these layer-2 solutions chase the leader, they become more attractive as investment propositions. Traditionally, Ethereum’s ETH token has been a good investment. While nobody is saying it isn’t anymore, we are saying that there are layer-2 and sidechain alternatives now inside the top ten tokens ranked by market cap.
Terra, Avalanche, and Solana are now well within the top ten alongside Ethereum and BNB, which means there are now five smart-contract-enabled blockchains in the top 10. Rewind 12 months, and this was not the case.
What about total value locked?
Wallets connected to a dapp and network are one key metric, while the other is how much value that network or dapp is capturing in tokens from its users. We call this the Total Value Locked, or TVL. Arguably this is a more important metric when considering DeFi dapps, where users stake and lock tokens for rewards.
The Total Value Locked (TVL) leaderboard looks completely different at the start of 2022. At writing, Ethereum holds over $116 billion in TVL and is still the dominant network, although its dominance has decreased from 65% at the end of January to 61% in February. We also see below that out of the top ten it is the only network to have suffered a decrease in its TVL over the last seven days.
Correlating back to the top ten tokens by market capitalization table, we see a clear overlap. Terra, Solana, Avalanche, BNB, and Ethereum are all present here in the top ten networks by TVL. Fantom, Polygon, and Cronos are also high on the list. Indicating that when a dapp ecosystem flourishes and attracts users, it can also attract more value. Helping it climb the all-important TVL ladder—in turn, attracting more dapp projects to launch on its network and completing the circle required for growth and value creation.
The above does not constitute investment advice. The information given here is purely for informational purposes only. Please exercise due diligence and do your research. The writer holds ETH, BTC, AGIX, HEX, LINK, GRT, CRO, OMI, IMMUTABLE X, GALA, AVASTR, GMEE, CUBE, RADAR, FLOW, FTM, BNB, SPS, WRLD, ATOM, and ADA.