Crypto/Blockchain half-year round-up. What have we learned from January to June?
2022 has been an eventful year for cryptocurrency, DeFi, and everything relating to Web 3.0. There have been several highs and lows, an extended bear season, catastrophic events, and a few pleasant ones. Indeed, the first half of the year is fully packed. In this article, we’ll give a brief roundup of significant crypto happenings within the first six months of the year.
Prolonged Bear Market
The 2022 bear market is speculated to usurp 2017’s bearish run as the worst in crypto history, with Bitcoin down by over 73% from its all-time high in November 2021 to June 2022. Several other prominent altcoins are down by over 80 to 90%, including Ethereum and Ethereum killers like Solana, Avalanche, Cosmos, and Algorand. Worse, some altcoins are down by 99%, and investors have lost a huge value during the dip.
Many altcoins without a compelling use case or roadmap may remain dead under the water, lacking reinvestment quality when a new bull run begins; hence, spelling doom for investors. Conversely, investors with stakes in Bitcoin, Ethereum, or other high-cap coins like BNB, Solana, Cosmos, Avalanche, etc., have higher investment security while waiting for a new bull run.
The year-long bear market that occurred from December 2017 to December 2018 is currently the longest in crypto history, where Bitcoin lost nearly 85% of its value in 365 days, with many other coins permanently losing value. However, if 2022 continues in this direction, particularly with the unpleasant global economic conditions, it may become worse than the year-long bearish run in 2017 due to global economic and political events.
Generally, 2022 has been a tough year for crypto and other digital assets, and a looming recession may send many more people bankrupt. We are already 8 months into a bear market; however, we await what the year’s second half spells for the cryptocurrency market.
Rise of STEPN and Move-to-Earn (M2E)
Amid the prolonged bear season, the Move-to-Earn (M2E) economy boomed tremendously at the end of Q1 2022, particularly with STEPN (GMT), gaining over 40,000% from March to April, moving from 0.01$ to over 4$ within six weeks.
Several other M2E tokens experienced a sustained boom, e.g., Genopets, Wirtual, Calo, and Dotmoov; however, the pressure of the bear market ate deep into this fast-growing crypto economy, and they all went down by 80 to 90% each; STEPN (GMT) closed the first half of the year at $0.84, 82% from its all-time high of $4.17 in April.
The move-to-earn economy is one practical and real-life use case of metaverse applications; hence, it is widely expected that these tokens will boom again at the start of a bull run. Investors who bought the top of these tokens are currently holding a losing position; however, going into the second half of the year, it may be a good time to buy the dip of the highly coveted M2E tokens.
DeFi has been a major part of cryptocurrency and blockchain technology, experiencing tremendous growth since 2020, with the rise in several protocols solving one problem or the other. Despite the downward direction of the market, several DeFi protocols have experienced growth in 2022.
DeFi has become more decentralized in 2022, with less pressure on the Ethereum network. Ethereum is the king of smart-contract blockchains; hence, many DeFi has tokens locked on the blockchain. However, the Total Value Locked (TVL) in the entire DeFi space, of which Ethereum had a 97% share as of Q1 2021, has now reduced to 63%, with Solana, BNB, Avalanche, and Terra locking in funds from several DeFi protocols.
DeFi lending is also making huge waves, pushing further to financing the funding of real-world assets (RWAs) and not just cryptocurrency. As a result of that bid, MakerDAO, one of the biggest DeFi lending protocols, helped close a real estate financing deal worth $7.8m for Tesla. This further shows how blockchain technology is further integrated into practical, real-world usage, and these technologies will be important in the near future. In addition, other lending platforms such as Aave have also seen tremendous growth by introducing flash loans and other impressive innovations, facilitating growth in the DeFi lending sector.
Other DeFi sectors like liquid staking, derivatives, and yield farming have also experienced tremendous growth in H1 2022. For example, Ethereum liquid staking is on the rise on platforms like Lido and RocketPool, as ETH holders are looking to lock in their tokens ahead of the Ethereum transition to ETH 2.0. Also, derivatives trading to hedge against hodling losses has increased on platforms like dYdX, while yield farming continues to grow as an income-generation avenue.
Despite the tremendous growth in DeFi, cyber attackers have focused their attacks on the DeFi sector. In H1 2022 alone, over $2.18 billion has been stolen in DeFi hacks and scams; this figure exceeds the amount stolen in 2020 and 2021 combined. This calls for DeFi protocols to take extra security measures to secure users’ funds because, without optimal security, the adoption of DeFi protocols in the real world will be massively delayed.
The market’s downtrend has had a devastating effect on the NFT ecosystem, with trading volumes hitting sharp declines each month lower than the last. As of June 2022, NFT trading volume had dropped below $ 700 million, from about $5 billion in January. If the bear market extends further, we can expect a corresponding decrease in NFT interest because of the dipping prices of Ethereum and Solana, the most common tokens used in NFT trading. Nevertheless, amid the dip, many companies are building projects and fundraising in the NFT ecosystem. In the penultimate week in June, eBay acquired KnownOrigin, an NFT marketplace; several other platforms have raised funds for several development updates.
The gaming ecosystem has seen a balanced mixture of positives and negatives in H1 2022. Like the NFT and Move-to-Earn ecosystems, participation in blockchain gaming has dwindled in line with the crypto market decline. Many of the tokens used in gaming have lost much value; hence, players aren’t incentivized to engage in gaming. Nevertheless, the number of available games continually grows and spreads from Ethereum to other blockchains, increasing the decentralization of the GameFi ecosystem while VCs continue to invest in blockchain gaming projects.
Regardless of the market direction, building in the GameFi industry will continue, providing more innovations — ripe for the next bull run.
UST Depegging and Terra Ecosystem Travails
Perhaps one of the events that accelerated the bear market in 2022 was the Terra Dollar (UST) depegging in May. The stablecoin’s algorithm failed to account for volatility when selling pressure skyrockets in a bear market; as a result, the algorithmic stablecoin failed, and by extension, Terra’s governance token. LUNA crashed badly, leaving investors in huge losses. Afterward, Terra’s governance council proposed a revival plan for the Terra ecosystem to mitigate the losses for old investors and to rejig the Terra ecosystem.
The depegging event caused a ripple effect in the crypto market, causing a sharp drop amid the existing dip due to market FUD; also, the terra ecosystem has since remained under the radar.
Since UST’s failure, many investors are now wary of algorithmic stablecoins, shifting concentration to other stablecoin types. Terra will serve as an expensive lesson for developers who may intend to create a new algorithmic stablecoin; however, for now, many choose to stick with the tested and trusted ones like USDC, USDT, and DAI.
Solana Ups and Downs
Solana’s popularity has soared since 2021, providing the Ethereum network with competition, particularly in NFTs. Transactions on Solana are fast and cheap; hence, people who couldn’t afford expensive NFTs or minting fees on the Ethereum network saw Solana as an easy alternative. As a result, NFT marketplaces like MagicEden record millions of dollars in trading volume.
Although NFT trading volume has generally plummeted following the bear market, Solana has remained an active blockchain, particularly since transactions barely cost a cent. As a result, the Solana Network is frequently overloaded, causing the network to shut down 5 times between January and June 2022; many times, these outages are caused by bots trying to flip NFTs on the Solana network.
Solana has announced a possible increase in transaction fees to reduce congestion on the network by minuscule transactions. Solana is arguably only behind Ethereum and BSC networks amongst smart-contract blockchains; however, if these outages continue, investors may lose faith and seek an alternative. Hence, the Solana DAO must find lasting solutions to prevent further outages on its network.
Ethereum Merge Postponed
Since Q4 2020, the Ethereum network has been working on a switch from a Proof-of-Work blockchain to a Proof-of-Stake to facilitate cheaper and faster transactions and prepare Ethereum for real-world adoption. This upgrade was split into three phases — (launching the beacon chain, the Merge, and sharding the blockchain).
The beacon chain was launched in December 2020, and the Merge was originally scheduled to launch in Q2 2022; however, the launch has been delayed and set to launch in Q3/Q4 2022, all things equal. It is important to carry out all tests before launching on the Mainnet; two testnet launches have been executed, but one more testnet will be executed before the final Merge. Ethereum developers agreed to delay the “difficulty bomb” that makes it near impossible for PoW miners to continue mining operations; however, they maintain that the Q3/Q4 timeline remains constant.
Regardless of the prolonged bear market, the first six months in 2022 has been quite eventful. Although trading volume and investment has declined, more projects are building new protocols to make the most of the next bull run. We can expect even more events in the second half of the year; hopefully, catastrophic ones like the UST depegging won’t reoccur.