Crypto market tends to be negative as large assets cannot break the local resistance. Like every other trend, it picks winners and losers. Unfortunately, altcoin markets are among the latter.
Similar Reading: BTC miners sell their tokens as Bitcoin slumps, creating panic in the market| As Bitcoin Slumps, BTC Miners Sell Of Their Tokens Creating Panic In The Market
Particularly, the downtrend in crypto has had a severe impact on Decentralized Finance (DeFi), protocols. The Ethereum DeFi sector is perhaps the largest ecosystem, and some of its most popular protocols have lost as high as 92%.
Jack Niewold is the founder of Crypto Pragmatist. set out toExplore the impacts of the DeFi crypto winter. His goal was to find out if DeFi protocol can remain profitable during this downtrend.
See below: As you can see, many protocols, such as MakerDAO, SushiSwap and Compound saw an increase in native token prices and even steeper drops in revenues. This evidence put into question the idea that DeFi and crypto, as Niewold said, “really reached an inflection point”.
The space is maturing, there are signs of institutional adoption and resistance to market declines in bigger cryptocurrencies. But, the majority of DeFi’s revenues have been lost. Niewold noted:
To be fair, most DeFi tokens have drawn by more than their fee rev, which is interesting–from a ‘fundamental’ perspective, stuff is trading at a discount. I think that’s the first takeaway for me, that projects with real product market fit are trading at a relative discount.
DeFi Pulse also provided additional data that showed the trend in total value locked across DeFi protocol has been to the downside due to revenues and token prices. It is currently at approximately $50 billion and has returned to February 2021 levels.
Crypto Undermining Ethereum’s Dominance
The entire layer-1 ecosystem feels the current downtrend more. Although Solana, Avalanche and other layer-1 ecosystems experience a drop in prices and activity, Ethereum (ETH), has the benefits.
This has led to a drop in Ethereum fees. For fast transactions, these are now priced at 0.13 Gwei (or 2 Gwei) after an average of 100 Gwei in network congestion.
Niewold claimed that L1 networks, such as Solana, Avalanche, and Solana, benefited greatly from an increase of Ethereum transaction fees. When these drop, users return the this network. Niewold stated:
(…) in a period of decreased demand, it makes Ethereum a lot more attractive relative to alt-L1s (…). Alt-L1s are not able to benefit from the fee reflexivity as their competitive edge diminishes during periods of lower activity.
NewsBTC reported yesterday that Bitcoin, Ethereum and the stablecoins USDT, USDC make up 77% of total crypto market capital. BTC dominance over ETH has been rising during this downtrend. This suggests that crypto investors are becoming more cautious.
Similar Reading: Ethereum Market Cap Reduced by More Than $100 Billion in the Last Month| Ethereum Market Cap Cut By Over $100 Billion Last Month
At the time of writing, ETH’s price trades at $1,800 with a 2% profit in the last 24-hours.
