From the Purge to the Merge

2022 was a year of both challenges and opportunities for the crypto industry, with several significant developments worth revisiting and considering as 2023 approaches.

From the explosive growth of the metaverse and Web3 to the continued evolution of decentralized finance and non-fungible tokens, 2022 was a year of major milestones and breakthroughs in the world of crypto. 

The world also witnessed the global crypto community aligning to support Ukraine amid its tensions with Russia. Thousands of people and leading brands joined hands to donate crypto funds to Ukraine, which will go down in history as one of the most prominent mass-market uses of blockchain technology to date.

2022 will also be remembered for the launch of the first-ever Ukraine NFT War Memories Museum, built to preserve culture and history using blockchain technology and non-fungible tokens, and for the launch of the most bizarre NFT collection ever – the Trump Collection.

The Much-Needed Purge

Beyond the global economic headwinds, the crypto ecosystem found itself floundering over the course of the year amid several unprecedented events, including but not limited to hacks, as well as the downward spiral and collapse of some of the biggest names in the crypto space. 

Promising projects like Terra (LUNA) collapsed as many investors continued exiting the market. Terra’s algorithmic stablecoin UST lost its dollar peg, leading to investors losing billions in the blow-up. Terra’s native token LUNA lost the entirety of its value, further adding to the downward pressure. 

Overall, the Terra catastrophe wiped off billions from the crypto ecosystem in a matter of weeks in May. Several centralized finance (CeFi) lending institutions like Voyager Digital and Celsius, and hedge funds like Three Arrows Capital (3AC), lost tremendous amounts of money because they had leveraged positions or had lent significant funds to Terra. 

The market started showing early signs of revival by the end of the summer. Retail and institutional investors began making their way back to crypto land. However, this renewed investor interest, fresh on the heels of the Terra debacle, was short-lived. As the market was battling an extended crypto winter, shocking revelations about FTX – one of the largest crypto exchanges – emerged in November. 

Binance CEO Changpeng Zhao (CZ) added more fuel to the fire by exposing concerns about FTX’s solvency and the value of the platform-issued FTT token. Shortly after, Binance dumped all its FTT tokens, sparking a panic. Investors, most of whom were still tending to the losses from May’s Terra implosion, rushed to withdraw their assets from FTX. 

This resulted in a massive liquidity crunch at FTX, following which the platform filed for bankruptcy. On top of this, several new concerns came to light, especially that FTX was commingling customer deposits and funds. Just like the Terra implosion, the downfall of FTX wiped billions from the ecosystem and took down several other projects, hedge funds, and lending institutions with it.

In essence, two of the biggest meltdowns in crypto history transpired this year. The chain of events effectively cleansed the nascent ecosystem, allowing the community to build upon the errors and experiences, rooting out the bad apples in the ecosystem while enabling other projects to rise to new heights. For instance, the downfall of FTX and Sam Bankman-Fried enabled Binance to position itself at the center of the crypto ecosystem.

The Historic Ethereum Merge

Ethereum’s (ETH-USD) “Merge” on September 15th emerged as one of the most important events of 2022. The largest smart contract blockchain successfully completed the Merge, officially transitioning from the energy-intensive Proof-of-Work (PoW) consensus mechanism to the environmentally-friendly Proof-of-Stake (PoS) consensus mechanism.

One of the positive effects that came as a result of the Merge is that the Ethereum network’s overall energy consumption dropped by 99.95%. To put this figure in perspective, the new PoS Ethereum blockchain’s energy consumption is roughly equivalent to 1% of what PayPal (NASDAQ:PYPL) consumes.

With the Merge, the Ethereum team has phased out other planned upgrades and updates throughout 2023. These series of updates will overcome the scalability problems clouding the Ethereum network.

Sponsorships & Partnerships led the way for other brands in 2022, venturing out of the crypto bubble and connecting to users by leveraging partnerships with mainstream brands, celebrities, and sports personalities, to name a few.

In terms of raising awareness and encouraging more people to enter the world of cryptocurrencies, has left no stone unturned. The platform released several commercials with prominent personalities like Matt Daemon and LeBron James. The platform also signed several partnership agreements with the UFC, NBA, Formula 1, and dozens more.

Other blockchain ecosystems like Tezos (XTZ), Polygon (MATIC), and several more also entered into strategic partnerships with mainstream brands and events. Tezos’ thriving list of brand integrations includes names like Manchester United (NYSE:MANU), McLaren Racing, Papa John’s, Evian Water, Gap (NYSE:GPS), Ubisoft, and many more. Tezos was also the main partner in this year’s Art Basel in Miami Beach, helping users to experience crypto art and generate NFTs of their own.

Meanwhile, Layer-2 blockchain Polygon continued to contribute towards the overall growth of the crypto ecosystem. Polygon roped in several big brands throughout 2022, including but not limited to Reddit, Adidas (OTC:ADDYY), the NFL, Starbucks, Adobe (NASDAQ:ADBE), and even Meta (NASDAQ:META). 

Polygon has also expanded its presence in the traditional finance industry and the technology industry as well. Trading platform Robinhood (NASDAQ:HOOD) partnered with Polygon to launch its Web3 wallet. Similarly, payments provider Stripe is using Polygon to facilitate Web3 payment transactions, and smartphone brand Nothing is employing Polygon’s infrastructure for Web3 application development. 

Above all, crypto was on display during the FIFA World Cup, positioning cryptocurrency projects and leaders to bring Web3, metaverse, and other emerging technologies in front of billions of people. Leading crypto platforms like Binance and, as well as metaverse ecosystems like Upland, announced multi-year deals and launched several events for users to get acquainted with the technology.

NFTs – Apes Were Bored

While NFTs have been around for more than five years, the non-fungible boom happened in 2021. The trend carried on up until the Terra catastrophe shook the crypto ecosystem. During this period, we witnessed the birth of the BAYC NFTs. 

The Bored Ape Yacht Club (BAYC) NFTs gained immense popularity in 2022. Everyone was flaunting their Ape avatars, which led to these NFTs changing hands for millions of dollars. Prominent celebrities and personalities jumped the hype train, further increasing the demand and value of the NFTs.

Yuga Labs, the team behind the BAYC NFTs, continued to expand throughout 2022, acquiring leading platforms like CryptoPunks, Meebits, and WENEW Labs. Thanks to the popularity of the “Apes,” Yuga Labs’ NFT collections dominated the aggregate NFT capitalization during the fourth quarter despite the prevailing bearish conditions. 

Promising Growth, Capital Inflows, Hacks, and More

The tumbling valuation backdrop aside, another segment that outperformed falling prices over the last year was the decentralized application (dApp) universe, which registered around a 50% increase in the number of unique active wallets (UAW) compared to 2021. 

At the same time, the decentralized finance (DeFi) industry found itself tangled in a mess – first because of the Terra implosion and then due to the FTX-Alameda meltdown. Currently, the total value locked (TVL) in DeFi protocols has dropped significantly, recently touching lows beneath $40 billion (nearly 80% less than the all-time high in 2021).

On-chain analytics for the NFT market stayed on the positive side, but not by much. The average increase in NFT trading volume in 2022 is merely 0.41% more than 2021’s volume. Meanwhile, blockchain games accounted for roughly 49% of the total on-chain activity in 2022, with Splinterlands still holding the crown as the most popular play-to-earn (P2E) game.

Despite the ups and downs, venture capital inflow into the blockchain ecosystem remained stable throughout the year. Capital investments and project incubation peaked during the first half of 2022, with Web3 infrastructure and startups taking the lion’s share of the funding pool. Venture capital firms and angel investors had already poured in upwards of $30 billion into blockchain technology by the end of June 2022, exceeding the total funding during all of 2021. Yet, due to the extended bear market, capital inflow slowed significantly over the back half of 2022. 

On the flip side, 2022 was a year of record-shattering hacks. Throughout the year, there have been a total of 312 hacks, resulting in losses of nearly $50 billion – the highest in the history of cryptocurrencies. Simultaneously, these incidents have pushed regulators and governments to accelerate developments across the broader spectrum. Between the European Union’s MiCA regulations and the first White House Bill for regulating digital assets, serious progress has been made toward establishing a comprehensive investor protection framework.

The Takeaway

As the year comes to a close, it’s clear that 2022 was a pivotal one for the industry and that there was no shortage of exciting developments to track. While the future of crypto is always uncertain, it’s clear that the industry is continuing to grow and evolve at a rapid pace. Looking ahead to 2023, it will be interesting to see what fresh innovations and breakthroughs the crypto universe has in store.

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