Terra’s Notorious Slope (Report) The crypto exchange Bybit teamed up with Nansen, a blockchain analytics platform, to produce another monthly report on state of the crypto industry. This report focused on the market conditions, DeFi activities and NFT markets.
The paper regarded Terra’s notorious collapse as fundamentally destructive to the nascent crypto community but beneficial to other Layer-one competitors since they have attracted the outflow capital derived from the fallen community.
Investors adopt a risk-off attitude
The report attributed the significant drop of the total crypto market capitalization to the risk-off mentality inflamed by “the global equity rout.” In the foreseeable future, the report suggested that, as the correlation between the crypto market to the Nasdaq Index remains intact, volatilities in the traditional market will expectedly cause violent price swings among digital assets. According to the report, the recent launch a number of crypto ETFs was a double-edged sword as they could increase the selling pressure during a bear market. A notable observation made in the paper is the fact that net inflows to stablecoins increased in May and that the supply has decreased simultaneously. Such scenarios have shown that as the selloff intensified — investors swapping their risk assets for stablecoins — there is a high chance they have exchanged stablecoins for fiats to avoid risks.
The State of Layer 1 Blockchains Amid Terra’s Fallout
Among all the “Ethereum Killers,” Avalanche has maintained significant volume despite the extreme market volatility, as the network continued to facilitate an average of 800,000 transactions per day in April. NEAR Protocol’s Rainbow and Orbit Chain witnessed substantial volume as well, apparently outperforming other major Layer-1 (L1) competitors. Dominant L1 blockchains, such as Ethereum, BSC, and Tron, have all benefited from Terra’s fallout, the report stated, as their market shares have ticked higher after the abovementioned collapse. In the midst of the recent selloff, outflow volume to protocols with a long history of operation was lower for those that have. Also, as capital tended to flow into big-cap protocols for avoiding high-risk assets, Ethereum’s diminished dominance that began in early 2021 has been recently reversed. After analyzing the transaction volume and total revenue across L1 networks, however, the report concluded that these indicators have not changed from July 2021. It is clear that there has not yet been an apparent consolidation to Ethereum.
NFTs as a Potential hedge?
NFTs suffered a dramatic plunge during the recent capitulation event, which was caused by the collapse and disintegration of Terra ecosystem. Despite the bearish period, both the number of users as well as the transaction volume have remained steady. Famous NFT projects like Azuki and CloneX continue to be the market leaders, holding over 80%. Nansen’s research found that the NFT-500 index is inversely correlated to the overall cryptocurrency market when denominated in ETH, making some even treat NFTs as a hedge against their volatile crypto assets. The report found that NFTs had a multi-fold increase in daily active traders since last year. This has allowed them to attract a new base of users beyond DeFi and Web3, creating a less correlation with other sectors of the crypto market.
