DappRadar released a report focusing on the unexpected collapse of the FTX exchange and its impact on the cryptocurrency markets, Web3 and the dapp industry.
“It took less than a week to go from normal operations to bankruptcy and fraud investigations! This event impacted the entire web3 industry,” the company said as the rapid decline of FTX and its associated coins, once valued at $32 billion, shocked the ecosystem.
The FTX exchange has been the subject of speculation about a lack of funding, a run on their stored assets, a freeze on withdrawals, a potential takeover proposal from Binance, which was quickly withdrawn, investigations from the SEC, suspicious transfers of a large number of tokens from the exchange, the hack, and a global bankruptcy declaration for FTX and all affiliated parties, all in less than a week.
FTX is likely the main driver of the current crypto decline
Its impact is likely the main driver of the current cryptocurrency market price decline, says DappRadar, saying cryptocurrency users are worried about a cascading wave of bankruptcies, prompting exchanges to check that they have kept sufficient liquid assets to repay customer deposits, as they are also experiencing a huge outflow of money from worried customers.
DappRadar says the web3 industry appears resilient: activity declined by 11.67%, but still managed to average 1.9 million daily unique active wallets (UAWs) and more than 25 million of transactions.
DeFi UAW peaked on November 9 and 10, hitting around half a million UAW on both days; DeFi activity is now back to previous month levels (400K dUAW). Gaming dapps seem immune to the FTX collapse, with 814,305 dUAWs over the past two weeks.
The total locked value of DeFi projects decreased by 20.60% to $65 billion. The Solana blockchain saw the biggest drop in TVL, falling from $1.65 billion to $585 million, or 64.66% in USD, but only 18% in SOL.
Crypto traders should avoid storing their assets on a centralized exchange
DappRadar recommends participants in the crypto ecosystem to withdraw their assets from centralized exchanges.
“Unlike traditional financial institutions and exchanges, where investors’ and depositors’ funds are insured, crypto exchanges are significantly riskier. Due to the nature of cryptocurrencies, exchange users must transfer ownership of their assets for a transaction to take place (meaning they are no longer depositors, but creditors).
“For this reason, crypto traders should avoid storing their assets on a centralized exchange. Due to the volatility of cryptocurrencies, investors may not be able to liquidate their holdings on an exchange if the price of a cryptocurrency drops dramatically. This could make it difficult for consumers to recover their crypto assets.”
The benefit of the whole FTX meltdown is that the realization that cryptocurrencies may not be the “golden egg” for novice investors is a positive trend for the market. In the market microstructure, these investors are referred to as “irrational traders”, which are usually exploited by more knowledgeable traders.
“In the past, irrational traders have excessively influenced prices, which is undesirable for the functioning of an efficient market. Once they are no longer present, the market will reflect the true value of crypto assets” , DappRadar continued, “Bitcoin, the most important cryptocurrency, has no business model; therefore, its price (and value) is subjective and constantly set by the intersection of supply and demand. However, the rest (including Ether, Cardano and Solana) should be considered utility tokens rather than coins. In this sense, they enable decentralized financial transactions (DeFi), give value to non- fungible (NFT) and ultimately serve as currency for future metaverse services.