Bybit releases a new report on the state of the crypto industry post-Terra collapse

  • Bybit presents the state of the crypto market across DeFi, NFTs, and other verticals post the recent collapse of the Terra ecosystem.
  • The crypto market has been reacting sharply and in tandem to the volatility of the U.S. equity market.

May 2022 has been a pretty rough month for cryptocurrency investors, especially with the collapse of the Terra ecosystem. The Terra ecosystem collapse has been devastating not only for investors but also for developers and other crypto community members.

Crypto exchange Bybit partnered with blockchain analytics firm Nansen to study the state of the crypto market. Here’s what investors are up to after all that has transpired in the crypto space.

1. Move to risk-off assets

Amid soaring inflation and the Fed tightening the monetary policy, investors have been adopting a risk-off attitude resulting in a sharp plunge in the U.S. equity market as well as the crypto market.

Bitcoin has been showing a close correlation with the Nasdaq Composite over a 30-day period. Thus, any volatility in traditional asset classes is likely to impact crypto in the near future. Furthermore, institutional participation could be a dual-edged sword.

On one hand, it helps to instill confidence but as the institutions start to de-risk, it can lead to additional selling pressure. As a result, the capital flows, in and out of Bitcoin have remained volatile.

2. Declining ETH outflow

Earlier this year, there was a significant ETH outflow leading to the anticipation of the arrival of The Merge upgrade on Ethereum. Earlier in March 2022, users started staking their ETH on DeFi protocols. Back then the total ETH outflows stood at 1,143, 529 ETH.

However as the selling pressure in the market mounted, the outflow declined to nearly half at 665, 898 ETH in April. In May they have declined further massively and the net ETH outflows so far stood at 108, 045 ETH. The Bybit report mentions:

In May, we saw a net inflow of 1 billion ETH, with massive spikes on May 12 and 14, possibly caused by the unfortunate de-pegging of UST.

Related: Ethereum’s switch to PoS likely in the next 3 months confirms core developers

3. Declining interest in crypto derivatives products

Amid the sharply falling market, there’s been a significant decline in the open interest across all major crypto derivatives. Earlier in March, the open interest rebounded sharply and reached its peak by April 5. However, it has been on a very sharp declining trend since then.

In May, the surge in market liquidations saw the open interest in crypto derivatives tanking to new lows. Thus, despite the growing inflows of stablecoins at exchanges, the open interest remains subdued. This suggests that capital has been fleeing the crypto space. Moreover, the Terra episode might also have triggered the liquidation of stablecoins to fiat.

Furthermore, the stablecoin supply has also been shrinking in recent times. It suggests a strong phase of derisking and money moving out of the market. Nearly 8.08 percent of capital tracked by Nansen is stored in Stablecoins, as of May 16th. 

4. Total value locked (TVL) across blockchain on a decline

The impact on the broader crypto market was also quite visible in the DeFi space. In decentralized finance (DeFi), the total value locked on popular blockchain networks reached new peaks in November 2021. However, the TVL has been on a decline and has dropped to the July 2021 metrics.

Furthermore, the cooling-off of the crypto prices over the last month has also affected the number of daily active addresses and daily transaction counts. However, Ethereum-competitor Avalanche has been an exception making an uptick in the daily active transactions. This comes amid the launch of the Crabada’s Swimmer subnet. In the report, Bybit notes:

Having already launched DeFi Kingdom’s and Crabada’s subnets, and with several other subnets still to come, the Avalanche ecosystem looks like it could potentially flourish in the mid-to-long-term, especially with regard to daily transactions.

Avalanche continues to lead the pack amid all the Layer 1 competitors to Ethereum. In April 2022, despite the bearish market conditions, Avalanche facilitated an average of 800,000 transactions per day. The report adds:

When sorted by bridge volume over the last 30 days, we can see that Avalanche has still maintained its large volume. Compared to Ethereum, the Avalanche network has experienced significant growth in daily transaction volumes since it shot to relative fame in August of 2021.

5. The state of the NFT market

For the broader NFT market, Nansen has got its own NFT-500 Index. The blockchain analytics firm noted that amid the global market meltdown, the NFT market has taken a major hit. During the recent episode of the Terra ecosystem collapse, NFTs witnessed some severe corrections in prices.

Nansen notes that its NFT-500 Index has given back all gains that it made since the beginning of 2022 as of the current status. If we see into the different categories of NFTs, the entire market is making a shift. For e.g. some of the most significant projects and Social NFTs such as BAYC, CloneX and Azuki continue to dominate the market with a whopping 83 percent market share. On the other hand, the once very popular Metaverse and Gaming NFTs have entered a period of long consolidation. In the report, Nansen mentions:

In April 2022, the NFT market saw an excellent rebound, mainly spearheaded by Social NFTs. The rally continued and peaked on May 3, led mainly by the BAYC ecosystem and Azuki. At its peak, both BAYC and Azuki achieved a floor price of 160 and 32 ETH respectively.

The popular BAYC NFTs continue to witness massive trade volumes with its parent firm Yuga Labs announcing the latest metaverse NFT collection drop, Otherdeed for Otherside. The minting of these NFTs resulted in a sharp surge of the gas fee on Ethereum.

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