Crypto prices are not the only things to diminish in a bear market. Network fees and revenue also decline as demand dwindles when markets retreat.
When crypto markets are bullish, demand increases fees and revenues for blockchain networks. However, the opposite happens during a bear market, which we are now seeing.
With markets trending downward for around six months, the revenues generated by network fees are starting to dry up.
Jack Niewold, the founder of Crypto Pragmatist, posted on June 7 his research on how the last 180 days have affected crypto fees and revenue.
THE STATE OF DEFI
A thread on how the last 180 days have affected crypto fees and revenue:
— Jack Niewold (@JackNiewold) June 6, 2022
Layer 1 Blockchain Revenue Tanks
The research was inspired by looking at DeFi lending platform Compound Finance. Its daily revenue has gone from $1 million to less than $100,000 a month.
Compound is not alone. Many crypto revenues have fallen further than the assets themselves. “It’s fair to say that those revenues aren’t sticky,” Niewold noted. Furthermore, most DeFi tokens have been drawn down more than their fee revenue.
“Projects with real product-market fit are trading at a relative discount,” the researcher observed. Additionally, Messari is reporting a number of DeFi tokens that have dropped more than 70% over the past year. These include Uniswap (UNI), Loopring (LRC), Curve (CRV), Compound (COMP), and Yearn (YFI).
Ethereum revenue has also dropped but it remains high because it is the industry standard for DeFi, smart contracts, and dApps. Furthermore, Ethereum still generates more than $10 million per day on average in fees, according to Crypto Fees.
Niewold observed that fee markets on Ethereum are incredibly dynamic. It is a “fee pig” in a bull market but becomes a lot more attractive than alternative Layer 1 networks in a bear market.
Ethereum Remains Superior
Ethereum blockspace is a premium product and users will pay a lot for it. This is not the case for competititors such as Solana or Cardano. Solana value moved on-chain has slumped about 80% over the past couple of months. This will have a negative impact on network revenue and ultimately SOL prices.
Alternative Layer 1 network revenue is getting crushed, which suggests they may be overvalued, the researcher noted. Layer 2 network Optimism bucked the trend recently but that was due to the OP airdrop. Furthermore, other networks, such as Zcash, NEAR, Avalanche, and Fantom, have all seen revenue growth over the past 180 days.
Additionally, the top ten revenue generators were making more than $10 million per day at cycle peak. Now they can barely make 10% of that, aside from Ethereum, which the researcher noted:
“And Ethereum, as always, remains the king.”
Ethereum “killers” will come and go, but Ethereum still remains the network of choice in both bull and bear markets. The same cannot be said for its rivals.
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