DappRadar has released a report exclusively focused on the unexpected collapse of the FTX exchange and all of its affiliated entities because of the shockwaves sent across 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 had an impact on the whole Web3 industry”, the firm stated as the rapid decline of FTX and its associated coins, once valued at $32 billion, shocked the ecosystem.
The FTX exchange platform experienced speculations about a lack of finances, a bank run on their stored assets, a withdrawal freeze, a prospective takeover proposal from Binance, which was shortly withdrawn, investigations by the SEC, suspicious transfers of a huge number of tokens of the exchange, the hack and a global bankruptcy declaration for FTX and all affiliated parties, all in less than a week.
FTX is likely major driver of current decline in crypto
Its impact is likely the major driver of the current decline in cryptocurrency market prices, DappRadar states, arguing that cryptocurrency users are worried about a cascading wave of bankruptcy, prompting exchanges to verify they retained adequate liquid assets to repay customer deposits as they also experience a huge outflow of cash from concerned customers.
DappRadar argues that the Web3 industry seems resilient: activity decreased by 11.67% but still managed to reach an average of 1.9 million daily Unique Active Wallets (UAW) and over 25 million transactions.
DeFi UAW peaked on November 9 and 10, hitting approximately half a million UAW on both days; DeFi activity is now returning to levels from the previous month (400K dUAW). The gaming dapps seem immune to the FTX collapse, with 814,305 dUAW over the past two weeks.
The total value locked of DeFi projects has decreased by 20.60 % to $65 billion. Solana blockchain has experienced the greatest decline in TVL, falling from $1.65 billion to $585 million, representing 64.66 % in USD, but just 18% in SOL.
Crypto traders should avoid storing their assets on a centralized exchange
DappRadar is recommending participants in the crypto ecosystem take out their assets from centralized exchanges.
“In contrast to 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 have to transfer ownership of their holdings in order for a trade to occur (meaning they are no longer depositors, but creditors).
“Because of this, crypto traders should avoid storing their assets on a centralized exchange. As a result of the volatility of cryptocurrencies, investors may be unable to liquidate their holdings on an exchange if the price of a cryptocurrency drops dramatically. This might make it difficult for consumers to retrieve their crypto assets”.
The upside of the whole FTX collapse is the realization that cryptocurrencies may not be the “golden egg” for novice investors is a market-positive trend. In market microstructure, these investors are referred to as “irrational traders,” who are typically exploited by traders with more knowledge.
“In the past, irrational traders have excessively influenced pricing, 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 prominent cryptocurrency, lacks a business model; as a result, its price (and worth) is subjective and constantly set by the intersection of supply and demand. However, the remainder (including Ether, Cardano, and Solana) should be viewed as utility tokens rather than coins. In this sense, they permit decentralized finance (DeFi) transactions, give value to non-fungible tokens (NFTs), and ultimately serve as the currency of future metaverse services.”