The crypto market is in a downtrend as the key asset is unable to break the local resistance. As always, the dominant trend picks winners and losers and unfortunately, the altcoin market has been between the latter.
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In particular, decentralized finance (DeFi) protocols have been severely affected by the crypto downtrend. Some of the most popular protocols in the Ethereum DeFi sector, perhaps the largest ecosystem in the space, have recorded losses of up to 92%.
Jack Newwald, founder of Crypto Pragmatist, set out to Take an in-depth look at the effects of the crypto winter in the DeFi space. One of his objectives was to determine whether the DeFi protocol could remain profitable in this downtrend.
As seen below, protocols such as MakerDAO, Sushi Swap, Compound, and others have seen their native tokens drop in price and their revenues drop even more. This evidence called into question the idea that DeFi and crypto, as Nivold put it, “really have reached an inflection point”.
Evidence of maturity in the space, institutional adoption and resistance in the overall market is the decline in the major cryptocurrencies. However, most of the DeFi sector has been unable to keep up with their revenues. Newwald noted:
To be fair, most DeFi tokens have received more than their fee revision, which is interesting – from a ‘fundamental’ standpoint, the goods are trading at a discount. I think this is the first way, for me, that projects that fit the actual product market are trading at relative discounts.
Additional data provided by DeFi Pulse indicates that the total value locked (TVL) in the DeFi protocol is trending downward with revenue and token prices. This metric returned to its February 2021 levels and is worth about $50 billion.
Crypto Bleeds As Ethereum Dominance Increases
The current downtrend is more pronounced throughout the Layer-1 ecosystem. While Solana (SOL), Avalanche (AVX), and others experienced declines in their prices and network activity, Ethereum (ETH) gains.
The negative trend has translated into a reduction in Ethereum fees. These are currently priced at 2 Gwei or $0.13 for faster transactions after an average of 100 Gwei or more during network congestion.
As Nivold noted, L1 networks such as Solana and Avalanche have benefited from the increase in Ethereum transaction fees, as these declines cause users to return to this network. Newwald said:
(…) This makes Ethereum much more attractive than alt-L1s (…) in periods of reduced demand. Alt-L1s do not benefit from this charge reflexivity, as their competitive advantage is eroded in periods of low activity.
As NewsBTC reported yesterday, Bitcoin, Ethereum, and stablecoins USDT and USDC make up 77% of the total crypto market cap. The dominance of BTC and ETH is increasing during this downtrend and indicates an overall de-risking behavior of crypto investors.
Related Reading | Ethereum’s market capitalization cut by over $100 billion last month
At the time of writing, ETH price is trading at $1,800 with a gain of 2% over the past 24 hours.