The crypto industry has had a turbulent time in 2022, marked by regulatory risks, high interest rates, and overhaul fears. Many cryptocurrency prices have fallen over 70%, resulting in losses of over $2 trillion.
Areas of the industry such as non-fungible tokens (NFTs), Metaverse, and DeFi have also faced major challenges. For many crypto investors, the question is even whether DeFi and Metaverse are dead. But is this really the case?
The decline in the number of users remains an issue
At its peak, most analysts expected smart contract-based applications to usher in the new era of Web3. Millions of people have subscribed to Metaverse projects like Decentraland and The Sandbox.
The popularity of decentralized finance platforms like Uniswap, PancakeSwap, and dYdX has also grown tremendously in recent years. During this period, the total value of deposits reached more than $250 billion. This reinforced the predictions of crypto enthusiasts that the traditional financial industry will be replaced by cryptocurrencies.
This year, however, that trend has reversed. DeFi platforms and the Metaverse have faced a drop in user numbers. The reason for this was the ongoing crypto winter caused by macroeconomic factors. In recent months, the total value of deposits on DeFi protocols has fallen to around $60 billion. Metaverse platforms also struggle to attract new users.
At Decentraland, for example, the number of active participants has dropped to less than 1,000. The Sandbox sees a lot more activity with around 100,000 users, but again the peak stats were much more impressive.
These tech companies committed to the Metaverse have had a rude awakening. Meta Platform (formerly Facebook)’s stock price has fallen more than 50% in 2022. Companies like Nvidia and Unity Software have also capitalized on the popularity of Metaverse and have seen stock prices plummet.
The Wall Street Journal published internal documents showing that Meta Platform’s Metaverse project was well below initial expectations, with around 200,000 users. Also, most users do not come back after using the platform for a month.
A closer look at the statistics shows that neither the DeFi industry nor the Metaverse is dead. Even though the numbers are decreasing, many users still use these platforms on a daily basis. And the $60 billion in assets locked up in DeFi is also not a sum to be overlooked. Especially when you consider that this industry didn’t even exist a few years ago.
Additionally, DeFi platforms could benefit from the collapse of centralized rivals like FTX, Celsius, Voyager Digital, and BlockFi. Unlike them, DeFi is much more transparent as all transactions are recorded through open source protocols, leaving less room for manipulation.
Although some DeFi platforms have also failed this year, they have been closely associated with centralized companies. For example, Anchor Protocol was part of the Terra ecosystem, which collapsed in May this year after the algorithmic stablecoin Terra UST lost its peg to the US dollar.
Serum is a DeFi project with a close relationship to insolvent crypto exchange FTX. There is a high probability that many traders who used Serum have switched to DeFi platforms such as Uniswap and GMX.
At Metaverse, things are a little different. I suspect that going forward, Metaverse will remain a relatively small niche with a long way to go before it becomes mainstream. Therefore, investing in Metaverse tokens like Decentraland and Sandbox is relatively risky.