DeFi’s Contrasting Narrative: TVL Drops by 4.3% Amidst Adoption Hype

Dapp Industry report May DappRadar
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Understand the state of the dapp industry in May 2023

One year after Terra Luna, the dapp industry remains strong with 1.9 million daily Unique Active Wallets. This report highlights the industry’s performance in May, including key trends in DeFi, gaming, and the NFT market, as well as notable changes in market share among leading platforms.

Key Takeaways 

  • The dapp industry grew by 9.97% in May, reaching an average of 1,967,051 daily unique active wallets (dUAW). Gaming retains a 36% activity share, while DeFi is up to 31%.
  • Stargate Finance was the most used dapp in May, reaching 2.04 million UAW – a 40% increase, crossing $10 billion in lifetime volume.
  • Despite the growing hype and increased adoption of DeFi protocols, the TVL presents a contrasting narrative, experiencing a 4.3% decrease, dropping to $79.16 billion.
  • The NFT market demonstrates resilience, with sales counts remaining robust at 3.6 million despite a 44% drop in trading volume ($675 million).
  • Ethereum holds 80% of the NFT trading volume but only 5.7% of sales, while Polygon leads with 27% of NFT sales and 276,657 traders.
  • Blur maintains a 65% market dominance as the leading NFT marketplace, while OpenSea’s market share stands at 27%. 
  • Users have lost $54 million in crypto from hackers who managed to exploit smart contracts or scam investors in May. 

Table of Contents

  1. Dapp Industry Overview 
  2. Stargate Finance outpaces PancakeSwap: a new dapp leader emerges
  3. DeFi’s TVL plunges to $79.16 Bn
  4. The Multichain controversy
  5. Resilience in NFT market: sales stay strong at 3.6M amidst a 44% trading volume dip
  6. Shifts in NFT landscape: Yuga Labs’ dominance challenged
  7. NFT marketplaces’ ongoing evolution: key changes & trends
  8. Is blockchain gaming losing its dominance to DeFi?
  9. $54 million lost due to exploits and hacks
  10. Conclusion

1. Dapp Industry Overview

As the digital world continues to grow and expand, so does the dapp industry. This May, the industry saw a significant 9.97% increase in daily unique active wallets (dUAW), averaging an impressive 1,967,051 dUAW. Key sectors, like gaming and decentralized finance (DeFi), continued to exhibit promising signs of growth and stability, further asserting the importance of this thriving industry.

Dapp Industry Web3 UAW May 2023 DappRadar

The gaming sector continued its reign as the industry’s dominant player, boasting 711,913 dUAW, which made up 36% of overall activity. Despite its dominance marking the lowest since July 2021, the sector still saw a respectable 5.97% increase from the previous month.

DeFi, on the other hand, saw even more significant growth, surging by 18.01% and reaching 607,945 dUAW. This boosted DeFi’s dominance to 31%, reflecting the increasing adoption of DeFi services by retail users, especially after the fall of SVB and the surge in meme projects’ popularity.

Other sectors weren’t left behind. Despite experiencing a slight 5% decrease from the previous month, social dapps still managed to reach 234,389 dUAW, making it the third-largest sector with a 12% dominance. The NFT industry followed suit, experiencing a 16% increase in active wallets reaching 155,308 dUAW, while maintaining an 8% dominance.

Top Blockchains in May 2023 by UAW DappRadar

In terms of blockchains, BNB Chain maintained its lead, showcasing an 8.68% increase and reaching 532,056 dUAW. Hooked, a social dapp overtakes PancakeSwap for the second consecutive month holding an impressive 20.35% dominance on BNB. Wax and Polygon come next, with the former experiencing a minor 1.10% decrease and the latter a 6% decrease. On Wax, Alien Worlds led the charge, holding 60.87% dominance, while Stargate Finance became the top dapp on Polygon with a 12.45% dominance.  It’s worth mentioning that Stargate Finance is the most dominant dapp by UAW as well on Arbitrum by 24% and Optimism by 55%.

Notably, Celo and Solana made significant strides in May. Celo saw a massive 273% increase in dUAW, hitting an average of 39,423, largely driven by Good Dollar’s 62.25% dominance. Solana, on the other hand, witnessed a 99.62% increase in UAW, averaging at 80,981 dUAW, a growth spurred by DeFi dapps like MeanFi and Saber.

Interestingly, the observed increase in dUAW occurred in blockchains offering DeFi products. Does this hint at a resurgence of DeFi’s popularity? Only time will tell. Nevertheless, these trends demonstrate the dynamic nature of the dapp industry and underscore the growing adoption of decentralized applications.

2. Stargate Finance outpaces PancakeSwap: a new dapp leader emerges

In the constantly evolving realm of dapp), understanding which platforms are drawing the most engagement is key to discerning industry trends. For May 2023, we turn our spotlight towards the dapps that have successfully attracted the largest number of unique active wallets (UAW), with a special emphasis on the remarkable performance of Stargate Finance.

Top 10 Dapps by UAW  May 2023 DappRadar

This month, Stargate Finance outdid its competition, boasting a staggering 2.04 million UAW. This represents an impressive 40% increase from the previous month, a substantial achievement, especially considering the dapp only gained significant traction in the last two months. Surpassing the once dominant PancakeSwap, Stargate Finance marks its territory in the ever-expanding dapp landscape, becoming the preferred DeFi choice in Ethereum scaling solutions. The team further celebrated their success, announcing on May 25th that they crossed a milestone of $10 billion in lifetime volume.

This rise in Stargate Finance aligns perfectly with the observed resurgence of DeFi services and the anticipated airdrop opportunities associated with projects such as ZKSync, Starknet, and LayerZero. Remarkably, six out of the top ten dapps in this ranking are DeFi-based, a stark contrast from just three months ago when gaming dapps would have dominated the list.

According to Grand View Research, the global decentralized finance market was valued at USD 13.61 billion in 2022 and is projected to expand at a compound annual growth rate (CAGR) of 46.0% from 2023 to 2030. The DeFi revolution has been pivotal in the financial sector, driving significant market growth. DeFi’s integration with decentralized blockchain platforms has gained immense popularity over the past few years. Its capability to eliminate intermediaries from financial processes has led to its wide adoption.

The elimination of centralized financial institutions, like banks, is one of the many advantages offered by DeFi technology providers. This, coupled with the elimination of fees imposed by these institutions and the user-friendly nature of DeFi platforms, has accelerated their adoption. These platforms can be accessed by anyone with an internet connection, democratizing the financial processes.

Amidst the DeFi domination, TinyTap, the world’s largest educational games library and platform, has made its mark, ranking fourth this month. With more than 200,000 lessons and games created by reputable educators and publishers like The Learning Company, Sesame Street, and Oxford University Press, TinyTap is carving a much-needed niche in the dapp industry.

As DeFi has dominated the discourse in this section, it seems only fitting to delve deeper into its performance in the next section. 

3. DeFi’s TVL plunges to $79.16 Bn

The Decentralized Finance (DeFi) ecosystem has been at the heart of discussions in the crypto world, but despite the hype and growing adoption, its performance tells a different story. As of May 2023, the Total Value Locked (TVL) in DeFi registered a 4.3% decrease, slipping to $79.16 billion, a figure that contrasts sharply with the projected growth of the DeFi landscape.

DeFi market TVL 2023 DappRadar

In the DeFi sector, Ethereum continues to maintain dominance, capturing a market share of 66.85%. Notably, Ethereum validator revenue has seen an uptick, largely driven by a rise in transaction fees rather than ETH issuance. On May 11th, daily validator revenue peaked at $6.41 million, the highest since The Merge, with transaction fees contributing $3.56 million of this sum. The surge in fees is attributed to the recent memecoin frenzy, causing the average transaction fee to jump to $22.49, a figure nearly quadruple that of the previous month. In response, the ETH.STORE Ethereum Staking Reward Reference Rate reached a new all-time high of 8.62% earlier this month.

Total Volume Locked of the top blockchains, May 2023, DappRadar

The DeFi landscape isn’t solely dominated by Ethereum, and other blockchains have had their share of the spotlight, albeit less positively. In contrast to Ethereum’s performance, other DeFi blockchains experienced a decline in their TVL. Fantom had the hardest hit with a 37% decrease in TVL, reducing it to $308 million, primarily attributed to its association with the Multichain turmoil, which will be explained more in detail in the next section. 

On a more positive note, ZK Rollups, Layer-2 solutions, have shown promising growth. With the anticipation of an upcoming airdrop, these Layer-2 solutions have gained significant TVL, ranking only behind Arbitrum and Optimism. In terms of transactions per second (TPS), ZKSync’s growth is noticeable, with a record of 1 million daily processed transactions, second only to Arbitrum One.

4. The Multichain controversy

The dapp world has been thrown into a whirlwind as rumors regarding the potential arrest of key members of the Multichain team by the People’s Republic of China (PRC) authorities surfaced on May 24, 2023. Multichain, formerly known as Anyswap, is a pioneering Cross-Chain Router Protocol (CRP) acting as a bridge between various mainstream chains.

Ever since the news broke out, the market’s response has been swift and severe. The price of Multichain’s native token, $MULTI, plummeted from $6.37 to $3.27, marking a devastating 49% drop within the week. While the token has recovered slightly to $4.22, it still indicates a considerable 33% drop from its initial price point.

Multichain dapp stats
Source: DappRadar

One of the significant repercussions of this situation involves Fantom (FTM), a blockchain platform closely associated with Multichain. FTM holds 40% of its assets on Multichain, and the recent turmoil has triggered a panic exodus of funds from FTM to Arbitrum, an Ethereum Layer 2 scaling solution.

TVL multichain as a share of total TVL

The Multichain controversy seems to be connected with the infamous FTX drainer, who allegedly used MULTI to protect assets from seizure by authorities. The total assets locked in MULTI amount to approximately $1.8 billion, implying that this controversy could have far-reaching implications on numerous other assets.

Despite the crisis, Fantom’s CEO, Michael Kong, has reassured users about the safety of their assets, claiming that this situation will not negatively impact FTM. However, Binance, a leading cryptocurrency exchange, has responded to the crisis by temporarily suspending deposits from MULTI. Additionally, LI.FI, a bridging aggregator, has taken steps to block MULTI.

On May 31, the Multichain team broke their silence with a Tweet detailing multiple technical issues that the protocol has been encountering. They cited problems with the scanning node network of Router5, leading to disruptions in normal cross-chain service. The tweet revealed that the team currently lacks the necessary permissions and ability to rectify these problems.

Furthermore, they announced the suspension of the cross-chain service for affected chains on their user interface. The announcement requested partners to stop directly invoking the Multichain protocol smart contracts on or to the impacted chains for cross-chain operations.

The implicated chains include Kekchain, PublicMint, Dyno Chain, Red Light Chain, Dexit, Ekta, HPB, ONUS, Omax, Findora, and Planq.

5. Resilience in NFT market: sales stay strong at 3.6M amidst 44% trading volume dip

As predicted in our report two weeks ago, the market has experienced a downturn, failing to surpass the $1 billion trading volume mark for the first time since December 2022. May’s NFT trading volume fell to $675 million, marking a sharp 44% decrease from the previous month.

The phenomenal market activity observed during the previous periods was primarily driven by Blur, a prominent name in the NFT ecosystem. However, the past month has seen a significant shift in Blur’s operations. Approximately half of Blur’s current activity has been directed towards lending rather than trading, contributing significantly to the decreased trading volume.

However, it’s crucial to differentiate between trading volume and market hype. A lower trading volume does not necessarily signify a decrease in market interest or activity. The total sales count for May stood at 3.6 million, a 23.6% decrease from last month, indicating a shift in traders’ focus rather than a loss of interest.

NFT trading volume and sales count in May

This transition is evident in the rise of low entry price NFTs and the gradual move towards alternative blockchains. Ethereum continues to dominate in terms of trading volume, accounting for over 80% of the total, yet its share in the total sales count is a mere 5.7%. This suggests that while high-value trades are still predominantly happening on Ethereum, the volume of transactions is being spread across other platforms.

Emerging as a significant player in this shifting landscape is Polygon. It currently dominates NFT sales with a 27% share and boasts the highest number of NFT traders at 276,657. Polygon’s success can be attributed to its scalability and low-cost transactions, providing an attractive platform for trading lower-priced NFTs.

6. Shifts in NFT landscape: Yuga Labs dominance challenged

After a comprehensive exploration of the dynamic NFT industry, it’s time to turn our attention towards the key players making waves in the space. In this section, we look at the top 10 NFT collections by trading volume for May 2023.

Top 10 NFT Collections, May 2023, DappRadar

Dominating the top two positions in our list are Yuga Labs’ NFT collections, Mutant Ape Yacht Club and Bored Ape Yacht Club. However, both these collections have seen a decrease in their trading volume over the past month. This decline coincides with their launch on Blend, a new NFT lending protocol. Our detailed report on Blend reveals more about this development and its impact on these leading NFT collections.

Ranking third on our list is Milady Maker. This collection gained massive traction after Elon Musk’s tweet on May 10, 2023, referencing the collection. This event led to a staggering 176% increase in the trading volume of Milady Maker. 

From the same universe comes Redacted Remilio Babies, which sits in ninth place. This collection of 10,000 neochibi PFPNFTs expands the Milady Maker paradigm, introducing a youthful, energetic aesthetic. Their trading volume rose by an impressive 219%, largely riding on the success of Milady Maker.

Capturing the sixth position on our list is the popular Pudgy Penguins project, which made significant strides this month. They successfully secured a robust seed funding of $9 million, led by 1KX, propelling them into the limelight of the NFT market. Furthermore, the debut of their Pudgy Toys collection on May 18 created quite a stir. These toys were completely sold out on Amazon in no time, and they are now being resold on Ebay for as much as $900 each. 

In conclusion, by looking at the rankings we observed a dip in trading volume and other metrics for collections that made their way onto the Blend platform. Secondly, the Yuga Labs ecosystem, which has been a dominant force in the NFT world, now shares the limelight with other rising NFT projects. 

This diversification signifies a more liquid, dynamic market, allowing other NFT projects to prove their value. The impact of celebrity endorsements, investment funding, and the role of lending protocols are just a few of the many factors shaping the future of NFTs.

7. NFT marketplaces’ ongoing evolution: key changes & trends

The past six months have witnessed an extraordinary shift in the NFT marketplace landscape, as newcomer Blur disrupted OpenSea’s once uncontested reign. Blur’s introduction has sparked a fresh debate over creator fees, market manipulation, and the equilibrium between Web2 and Web3 principles in the NFT community.

NFT Marketplace Dominance, May 2023, DappRadar

In May 2023, Blur retained a commanding lead in the NFT marketplace, boasting a market dominance of 65% and netting $442 million in sales. This performance stands in stark contrast to OpenSea, whose market share sits at 27% with a revenue of $183 million. Interestingly, despite the shift in market dominance, OpenSea retains the most significant number of traders at 377,087 compared to Blur’s 36,673, implying a remarkable 10-fold difference.

But May 2023 wasn’t just a tale of Blur and OpenSea; several other noteworthy developments unfolded in the NFT marketplace. Tabi, formerly known as Treasureland, announced the completion of a $10 million angel funding round on May 10th. This venture was backed by notable firms such as Animoca Brands, Draper Dragon, Hashkey Capital, Infinity Crypto Ventures, and Youbi Capital.

Tabi, a BNB Chain-based platform, stands out with its unique feature of converting users’ on-chain activities into “experience points,” which can later be swapped for airdrop rewards and earnings. In addition, the platform contains a gaming segment, aggregating blockchain game transactions and entertainment.

In parallel to Tabi’s advancements, Binance has also been scaling up its NFT-related operations. In early March, its native NFT AI generator, “Bicasso,” reached its minting cap of 10,000 in less than three hours after launch. A week later, Binance announced the integration of Polygon support into its NFT marketplace, strengthening its blockchain compatibility.

Even more promising, Binance revealed its forthcoming NFT VIP Program in May, which is due to kick off on 1 June. This program aims to extend exclusive privileges to all eligible NFT users, encompassing two sub-programs: NFT Trader VIP and NFT Holder VIP. These programs will allow users to enjoy lower trading fees and access to Binance VIP level upgrades of up to VIP 4 depending on their NFT VIP level, thus reducing Spot and Futures trading fees, key account coverage services, and exclusive invitations to Binance events.

A significant development in the NFT space this year has been the growing interest in Layer-2 ZK Rollups. On March 24th, the first NFT marketplace, Mint Square, enabled NFT trading on Starknet and zkSync Era, offering cheaper transactions, faster confirmation time, and robust security backed by Ethereum consensus.

To conclude, the performance of NFT marketplaces in May 2023 indicates a shifting landscape with new entrants challenging the status quo. As this exciting space continues to evolve, it is set to offer an array of opportunities and innovations for creators, traders, and investors alike. 

8. Is blockchain gaming losing its dominance to DeFi?

Despite experiencing a slip in dominance, reaching an all-time low since July 2021 of 36% with 711,913 daily Unique Active Wallets (UAW) this May, blockchain gaming continues to demonstrate resilience and versatility. Interestingly, the number of gaming wallets shows a 6% increase month-to-month, emphasizing the industry’s dynamic growth. Additionally, the blockchain gaming industry this month had a 77% dominance over the transactions of the entire dapp industry, with 550 million transactions, mainly done on the WAX blockchain.

Industry Dominance by UAW in the dapp ecosystem, May 2023, DappRadar

As mentioned in the first section, alongside blockchain gaming, a relatively unnoticed segment,’social’, has made a breakthrough. In May, social dapps commanded a 12% share with 234,389 daily UAW. These emerging platforms mirror social media giants like Facebook and Instagram but introduce engaging gamification elements.

This budding niche could indeed be seen as an extension of blockchain gaming, blurring the lines between entertainment and social interaction in the digital space.

In the ever-evolving world of blockchain gaming, one key player is making headlines – Apple. In an intriguing move, the tech giant is exhibiting a more accommodating stance towards Web3 applications. The caveat? Developers must forfeit certain Web3 features and be prepared to pay the “Apple Tax”.

Taking advantage of this new reality, Axie Infinity, the popular play-to-earn game, launched its mobile version on the App Store in eight countries across LATAM and Asia. Despite in-app NFT purchases being off-limits, the game garnered at least 1.5 million installs, highlighting the vast untapped market potential.

Similarly, STEPN announced its Apple Pay integration, allowing users to acquire in-app non-crypto tokens for purchasing NFTs. However, this comes at a cost, as users choosing this route will face significantly higher transaction fees.

Stay tuned as we unravel the captivating narrative of blockchain gaming in 2023 on June 9th, as our gaming report dive deeper into this intriguing industry.

9. $54 million lost due to exploits and hacks

The dapp world has witnessed its fair share of ups and downs when it comes to exploits, with May 2023 being no exception. Although the month recorded a decrease in the total value of losses from hacks and exploits compared to previous months, it still showcased vulnerabilities.

According to data from the REKT Database, May 2023 recorded 24 incidents, resulting in a combined loss of $54 million. While this figure may appear relatively lower than the preceding months, where losses exceeded the $100 million mark, it still emphasizes the need for heightened security measures in the industry.

Exploits and hacks in the dapp world, DappRadar

The majority of these incidents, precisely 50%, targeted the BNB chain, while 22.7% affected the Ethereum network. This distribution underscores the importance of addressing security gaps across different blockchain ecosystems.

Top 10 Dapp Exploits in May 2023, DappRadar

The most significant exploit in May 2023 involved Fintoch, a blockchain financial platform that claimed to be backed by Morgan Stanley and guaranteed users a daily 1% return on their investments. Unfortunately, Fintoch turned out to be a Ponzi scheme, with the alleged CEO, Bobby Lambert, exposed as a paid actor named Mike Provenzano. Both the Singaporean government and Morgan Stanley had issued warnings earlier in May, classifying the platform as a scam.

On May 22, the Fintoch team executed a rug pull, resulting in a staggering loss of $31.6 million. Following reports of users being unable to access their funds, the team swiftly transferred the stolen cryptocurrency to various blockchains, including Tron and Ethereum. 

The second notable exploit in May targeted Jimbos Protocol, a decentralized finance (DeFi) liquidity protocol operating on the Arbitrum system. The attack occurred on May 28 and led to a loss of 4,000 Ether (ETH), equivalent to approximately $7.5 million.

The attack on Jimbos Protocol capitalized on a lack of slippage control on liquidity conversions, enabling the attacker to manipulate swap orders and take advantage of price discrepancies. The protocol’s mechanism, designed to address liquidity and volatile token prices, contained a logical vulnerability that allowed for the exploit. Consequently, the price of the native token, Jimbo (JIMBO), plummeted by 40%. The attacker siphoned 4,090 ETH from the Arbitrum network and utilized the Stargate bridge and the Celer Network to transfer approximately 4,048 ETH from the Ethereum network.

The dapp industry is highly susceptible to hacks and exploits. It is crucial for investors and traders to stay updated on the latest security measures and protocols. Implementing proper security measures, such as two-factor authentication and especially cold storage, can help protect investors’ assets from such attacks. 

10. Conclusion

May 2023 has presented a dynamic and transformative period for the dapp industry. With a growth of 9.97% and a surge in the daily unique active wallets (dUAW) to an average of 1,967,051, the sector’s growth momentum remains promising.

The gaming and DeFi sectors have maintained a significant share of activity at 36% and 18.01%, respectively. The exceptional performance of Stargate Finance, becoming the most utilized dapp and achieving $10 billion in lifetime volume, underpins the potential and growth within the DeFi space.

However, it’s not all plain sailing in DeFi. Despite its growing popularity, the TVL registered a decrease of 4.3%, falling to $79.16 billion, revealing the challenges and volatility inherent to the sector.

Meanwhile, the NFT market demonstrated resilience, with sales counts remaining robust at 3.6 million despite a 44% drop in trading volume. The shift in trading platforms from Ethereum to Polygon indicates an evolution in trader preferences, with Polygon capturing a significant 27% share of NFT sales.

The dominance of Blur in the NFT marketplace continues, accounting for 65% of the market, whereas OpenSea holds a 27% share, emphasizing the concentration of power within a few key platforms.

Regrettably, the sector’s progress has not been without setbacks. Security breaches, mainly through the exploitation of smart contracts and scams, resulted in users losing $54 million in cryptocurrency. This points to the urgent need for enhanced security measures and increased vigilance among users.

As we venture into June, it is essential to reflect on these trends, understanding the highs and lows, successes and failures, to ensure the continued growth and sustainability of the dapp industry.

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