DeFi Remains Strong Despite FTX Implosion
The FTX meltdown hasn't done much to dampen the optimism of the remaining significant participants in the market, despite claims that it is cryptocurrency's Lehman Brothers moment.
Following allegations that its founder and CEO Sam Bankman-Fried had improperly handled customer assets, FTX, one of the biggest cryptocurrency exchanges in the world that was once valued at $32 billion, filed for bankruptcy in late 2022. The majority of FTX's assets were sold off within a few days. The failure has damaged public confidence in the sector and dealt a blow to investment companies, high-profile brand ambassadors, and many of the 5 million customers who held their digital assets with FTX.
Crypto to Remain Solid
Changpeng Zhao, widely known as CZ, the CEO of the competing exchange Binance, stated in an interview that “a lot of consumer confidence is shaken, and I think we’ve been set back a few years”. The comparison to the financial crisis of 2008, he continued, was "probably an accurate analogue" for the FTX disaster.
Some of the industry's well-known supporters contend that FTX's failure does not spell the death of crypto in general, although it highlights the need for the sector to mature.
During a live YouTube Q&A session, Kris Marszalek, CEO of exchange Crypto.com, said, "We will prove all the naysayers—and there are many of these right now on Twitter over the last couple of days—wrong with our actions.”
The FTX crash has been likened to the deflation of a market bubble, which had been supported mainly by consumer belief and now poses severe concerns to the broader crypto industry.
Although conceding that greater regulation is required to prevent another collapse like that of FTX, many longtime supporters still have faith in the future of cryptocurrency. For instance, Binance's CZ stated last week that the market is likely to "heal itself" but that more regulation is necessary to make it a "healthier" sector of the economy.
Michael Saylor, the creator and current executive chairman of software business MicroStrategy and a longtime supporter of cryptocurrencies, told CNBC on Thursday that "the market needs to grow up" and that "the regulators are coming into this arena."
Saylor responded that the future of digital assets is still bright, but only if authorities step in to guide the sector and safeguard users when asked what the FTX crash means for the crypto business. "The market is anticipating guidance from the authorities on registering a digital currency. This is how a digital good is registered,” he said.
One of the first decentralised cryptocurrencies to appear was Bitcoin, which is also regarded as one of the more stable and reliable digital assets. The volatility level of Bitcoin, a measure of daily price changes, dropped below that of the S&P 500 and Nasdaq last month, before the FTX upheaval, for the first time in two years.
The President of El Salvador, Nayib Bukele, has supported Bitcoin despite the current market slump. As the first country to do so, Bukele made international news in 2021 when he declared Bitcoin as legal cash in his nation. His enthusiasm for Bitcoin over other cryptocurrencies is still strong despite the experiment's mixed results and the crash of FTX.
“FTX is the opposite of Bitcoin,” Bukele mentioned on Twitter. He further remarked that "Bitcoin’s protocol was created precisely to prevent Ponzi schemes, bank runs, Enrons, WorldComs, Bernie Madoffs, Sam Bankman-Frieds.” This provides reassurance to everyone in the market that the FTX crash won’t create a domino effect because of the difference in protocol.
DeFi Remains Strong
The total value locked (TVL) across DeFi platforms has decreased by almost 20%, from $83 billion to $65 billion, since the beginning of the month, according to a recent analysis done by Bitcode Method. The market leader, Ethereum's TVL, decreased 14% from $51 billion on November 1 to $41 billion on November 13 in 2022.
The largest liquid staking service provider, Lido, has seen a rise in ETH staking returns of over 10.6%, making it the highest yield ever. However, ETH no longer has a peg to ETH and is trading at 0.9883 at the time of writing.
Tron's TVL decreased from $6.1 billion to $4.6 billion, while BNB's TVL also experienced a similar fate and was down 14%, hitting $7.3 billion. Avalanche, Polygon, and Arbitrum, among other networks, also had a decline in TVL of 25.06%, 8.76%, and 10.26%, respectively.
However, the Solana blockchain is the biggest loser regarding TVL in USD, with its TVL plummeting by almost 65% from a staggering $1.65 billion to $585 million.
On the plus side, despite the FTX incident, the decentralised apps (DApp) market thrives. According to the research, the market's number of unique active wallets (UAW) fell by 11.67% in November, averaging 1.9 million dUAW. In contrast, the overall volume of transactions only fell by 0.28% to 26 million.
On the other side, DeFi UAW reached its high on November 9 and 10 in 2022, coming close to 500,000 UAW daily. The FTX unravelling happened concurrently with this. According to data, DeFi activity has returned to its 400K and will likely increase further.
According to Dapp Radar, the ensuing crypto exchange catastrophe that led to its bankruptcy seems to have had little impact on gaming dapps, with its UAW soaring on November 10 in 2022 to 900,000. While this was happening, the activity in the gaming chains EOS, Hive, Wax, Ronin, and IMX generally stayed unaffected and did not experience any notable swings.
The market is primed for further losses due to the devastation caused by FTX's collapse. However, Web3 is still tenacious, according to recent research by DappRadar. Centralised services lose out as a result of cryptocurrency collapses. The decentralised finance industry has also been damaged as the contagion spreads. However, user activity in the sector is reverting to its levels from the prior month.
