Behavior Report – Macroeconomic events accelerate crypto adoption and regulations

The global events that unfolded in the first four months of the year present a unique scenario for blockchain technologies. The disruption of the global markets due to Russia’s war on Ukraine pushed the price of various metal and energy commodities, including Gold, Palladium, oil, and gas, near to or at all-time highs. The geopolitical landscape tainted the market with fear causing selling pressure in financial markets, including cryptocurrencies, driving prices down.   

Contents

• Adoption and macro events accelerate the regulatory process for crypto assets 
• DeFi transactions are on a one-year low while the number of NFT trades reaches record highs
• Organic growth outside Ethereum
• Interest in Web3 Metaverse keeps growing worldwide
• DappRadar user demographics
• Closing

Key Takeaways

• Ukraine and Russia lead the list of countries with higher crypto adoption rates, with 12.73% and nearly 12%, respectively.  
• DeFi transactions in Q1 hit the lowest levels since February 2021, while the 116 million NFT transactions across all blockchains set new records in Q1’22.
• Transactions in Avalanche doubled from the end of 2021, while Ethereum’s activity decreased 8% in the same timeframe.
• The Web3-based metaverse keeps adding more brands and enthusiasts worldwide; social metrics confirm global interest in this topic.

The fearful sentiment that leads rational investors to use safer investment vehicles applies to cryptocurrencies such as stablecoins and Bitcoin. Thus, it is not rare to see BTC’s dominance on exchanges trending upwards. And even though Bitcoin and other crypto-assets remain highly volatile and strongly correlated with the capital markets, they offer an ideal hedge against high inflation periods like the one affecting 2022. A recent study by Gemini shows that countries with higher inflation rates are most likely to adopt cryptocurrencies.

Due to their inflationary hedge property and other advantages presented by Web3 assets, the demand for blockchain applications remains steady despite the challenging global scenario. The undeniable interest and appetite for crypto assets and Web3 concepts like the metaverse and play-to-earn face challenges present in today’s market from economic, regulatory, and technical perspectives. This report dissects the biggest behavioral trends based on the latest market situation.

Adoption and macro events accelerate the regulatory process for crypto assets 

The adoption of digital assets is spreading globally, expanding to diverse economies and regions across APAC, Southeast Asia, and Latin America. 

The Asian market is already undergoing high digital adoption and represents 60% of the global population. India is the most prominent crypto market globally, with 100 million crypto owners. Meanwhile, 1.2 billion Chinese and 750 million active users spread across 23 regions of China will begin paying for daily activities in e-CNY by using a beta version of the Digital CNY app. Furthermore, countries like the Philippines, Vietnam, Thailand, and Indonesia are still leaders in crypto adoption and blockchain gaming activity. 

In the Americas, the USA stands out with the second largest crypto base with 27 million holders. Buenos Aires announced a Bitcoin payment tax plan, while adoption and regulatory actions are increasing in emerging economies, including Venezuela, Colombia, and Brazil. Meanwhile, European nations like the UK, Portugal, France, and Spain show their interest in Web3’s potential. But the geopolitical implications altered the entire scene.  

Ukraine is one of the countries with a higher crypto adoption rate worldwide. Even before the war, Ukraine and Russia led the list of countries with higher crypto adoption rates with 12.73% and nearly 12%, respectively. However, the crypto activity in both nations spiked when the war began. The amount of Ruble exchanged for Bitcoin surged significantly due to the sanctions on Moscow, while the BTC/UAH pair is still traded at a premium on most exchanges. 

The silver lining for blockchain and cryptocurrencies is their potential to impact society positively. The Web3 community gathered around Ukraine, collecting north of $60 million in crypto assets to help their cause.

However, the rising adoption of crypto assets will face hurdles and challenges along the road to mass adoption. Technical constraints to the growing and imminent Web3 population, the recent number of high-end crypto thefts, and the possibility that Russia or any other entity may use digital assets to circumvent the law have accelerated the need to bring digital assets under the scope of regulators. 

China’s central bank has been characterized for banning crypto assets regularly. India has already amended existing crypto policies, while the US, the UK, and the European Union are expected to make substantial progress before the year ends. 

The latest macroeconomic landscape accelerated the need for regulations of a digital space growing exponentially since COVID-19. At this point, almost every nation has at least begun assessing the risks and advantages of using digital assets. 

DeFi’s transactions are on a one-year low while NFTs and games resist

The volatility of cryptocurrency prices and the unstable macroeconomic picture affect the entire industry. Nonetheless, the market’s bearish sentiment is hitting each of the blockchain’s main categories in different ways. 

DeFi has been the most affected category. The number of DeFi transactions reached a one-year low in Q1 2022, showing that the interest in this category is distant from the summer feeling. Nonetheless, the industry’s TVL is recovering behind the surge of holistic and fast ecosystems in Terra, Solana, and Avalanche. 

Contrarily, the NFT market has seen its organic trading volumes shrink from January’s record, but the number of trades and transactions involving NFTs reached an all-time high in Q1. Over 116 million transactions in NFT dapps and marketplaces across all blockchains were registered in Q1 alone, increasing 22% from Q4 2021. 

The number of NFT trades in all blockchains also peaked in Q1 2022, growing 153% from Q1 last year. The growth of the NFT market in Layer-1 alternatives, namely Avalanche and Solana, acts as support as the demand for Ethereum NFTs stabilizes from January’s record levels.

Meanwhile, blockchain games registered 78% of the industry’s transactions and are 520% higher than Q1 2021. Despite the opposite trajectories, these categories remain critical to the evolution of the crypto industry.

Organic growth outside Ethereum

Ethereum 2.0 will enhance the network’s scalability and security and its widely expected move to Proof-of-Stake (PoS). However, “The Merge” has been delayed until Q3 or even Q4 of this year. It is also worth noting that around 10% of ETH’s circulating supply is locked in the Ethereum 2.0 staking contract. 

The Ethereum revamp has propelled L1 blockchains like Avalanche or Solana as established alternatives for the leading smart contract network. Similarly, L2 solutions and sidechains like Polygon, Ronin, or Arbitrum have increased their user base notably. These networks are characterized by low gas fees and fast processing times, ideal for hosting games and maximizing non-whale investors’ yields. 

In perspective, Avalanche is processing 100% transactions more than in December and 10,500% more than a year ago. Polygon hosts 2,000% more transactions than one year ago, and Solana has scaled its transactions by 9,700% from Q1 last year. On the other hand, Ethereum is processing 58% fewer transactions than in Q1 2021, although its NFT volume and DeFi’s TVL have grown exponentially during the same period.

The incremental use of Ethereum alternatives has also brought new behavioral trends. The need to transfer tokens in and out of the network is higher than ever. The value locked in blockchain bridges, platforms that enable cross-chain transfers, surpasses $50 billion, becoming a desirable target for malicious attacks. In 2022 alone, almost $1 billion was stolen from asset bridging platforms.  

Moreover, the increased focus on blockchains outside Ethereum not only comes from users but from developers too. Polkadot, Cosmos, and Solana are the blockchains with more developers after Ethereum, according to Electric Capital. The number of Cosmos, Solana, and Near developers tripled last year, and the interest in the Polkadot ecosystem is also reflected.

The latest consumer and market opportunity trends show organic growth and signal the economic potential for these rising networks. 

Interest in Web3 Metaverse keeps growing worldwide

Even though the interest in the metaverse appears to be cooling down after Meta’s rebranding announcement in late October, the notion of a decentralized blockchain or Web3-based metaverse keeps adding adepts. A social analysis measuring Twitter mentions trends shows that the appetite for the Web3 metaverse appears to be gaining steam.

The United States, Indonesia, India, and Turkey remain the regions with more interest in this topic while emerging countries like The Philippines, Vietnam, and Nigeria appear on the charts. Likewise, the UK, Japan, South Korea, and France are other countries looking to increase their exposure to the narrative. 

Although not a behavior trend per se, the exposure of the most influential brands in the Web3 metaverse also bears consideration. Fashion giants like Gucci, Dolce, and Burberry have launched NFT collectibles, while Nike and Adidas have partnered with Web3 leading brands. HSBC and JP Morgan will open virtual booths in The Sandbox and Decentraland. And the list can go on. 

What is more, according to LinkedIn, the number of crypto offerings grew 400% in 2021. As the world’s largest companies have made their intentions clear about their metaverse plans, it is important to identify which brands will lean towards a Web3-based metaverse, and which ones try to build their centralized virtual realities. 

DappRadar user demographics

Using DappRadar traffic analytics, we can draw high-level behavioral patterns of the last few months. The US still represents the most significant audience by a wide margin in traffic. The Russian engagement increased 10% from the end of 2021, confirming the global trends that became more visible after the war.

The Asian footprint is still noticeable, although the presence of China has been diminishing, most notably since the War in Ukraine. It is also worth noting that China is battling a new COVID lockdown, adding a different variable to their case. The audiences from other Asian regions like India and Southeast Asia are growing too.

Other demographic variables present slight changes to the trends observed in December. Users from Generation X, aged 45 to 54, have seen the most significant growth and now represent almost 10% of DappRadar’s traffic. Millennials and GenZ are still the dominant groups with 36% and 27% of the traffic, respectively. Nonetheless, it is positive to see other age groups embracing the industry.

Desktop dominance reached an all-time high of 53% of the traffic in terms of preferred devices. It is widely expected that mobile traffic will pick up as adoption grows. The rise in the use of desktops can also be driven by the perception of desktop devices as safer assets to navigate through Web3 than mobile or tablets. Additionally, the spike in usage of dapp games throughout Q1 2022 could account for a portion of this, as the majority of blockchain games require the user to play using a desktop computer.

Closing

The War in Ukraine shifted the narrative entirely, from sustained organic growth in most blockchain categories to the complicated macro scenario with soaring inflation and imminent regulations that can embrace or disincentivize crypto assets depending on each region. Nonetheless, the blockchain industry continues its path toward mass adoption. 

The behavior of blockchain users followed mostly the fearful sentiment of the market. The number of DeFi transactions is at a one-year low, and even though its recovery might take longer, the multichain paradigm offers different alternatives outside of incumbent blockchains. Similarly,  the surge of NFTs in Solana, Avalanche, and Flow marketplaces paints a bullish signal for expanding this category beyond Ethereum. Positively, the demand for blockchain games remains stagnant, confirming that game dapps will be a critical foundation for the industry. 

From a global perspective, it is positive to see trends like the Web3 metaverse and interoperability attracting more enthusiasts around the globe. The Asian market, the US, and the EU deserve particular focus as these jurisdictions continue with their crypto regulatory process.

All in all, the industry keeps maturing. It is positive that even amid the most complex geopolitical scene in recent times, there are signs of organic growth in specific categories and overall adoption of crypto assets globally.