Data from the cryptanalysis firm Messari shows that many of the projects that were once favored by the market are still far from their all-time highs. Matt Casto, an analyst at CMT Digital, tweeted a compilation of 410 crypto assets that hit their all-time highs in 2017 or later, showing an average loss of 65.71% for all projects combined.
Of the 410 assets analyzed, 157 hit their all-time highs in 2018 after losing an average of 90.71% in value since then. Another 67 assets hit their all-time highs in 2019 and have since lost 73.33%. In contrast, projects that hit their all-time highs in 2021 lost just 13.82% of their value.
According to Casto, holding assets that have hit their all-time highs in the past three years is “a massive loss of opportunity cost to deploying capital.” The data shows how the market favors hype cycles and speculates on coins that often have little to add to the cryptosphere as a whole.
While the current crypto rally is also reflected in many of these coins, the data shows that they are still far from their all-time high. In the meantime, tokens in the DeFi ecosystem have continuously exceeded their all-time highs, showing that for many of these coins the best days are yet to come and that this is happening at the expense of the zombies.
The great repricing
While Bitcoin (BTC), the oldest cryptocurrency, continued to grow over the years, most other “old” coins did not show the same trend. Messari data also confirms the concept of “great repricing,” which means that many of the top altcoins on the market are being replaced by newer sectors such as decentralized finance.
When asked about the great discount, Ryan Watkins, Senior Research Analyst at Messari, told Cointelegraph that it was “definitely not just hype” but “real fundamentals, high growth, strong product market alignment”.
These once-dominant altcoins are known as “Zombie Projects” and are typically layer-one blockchain protocols, many of which compete directly with Bitcoin and Ethereum, either as currency or as a platform for asset issuance, smart contracts and more. Since both BTC and Ether (ETH) retain their relevance, many of these projects are now generally viewed as outdated or failed.
DeFi is one of the most interesting (and risky) investment decisions of 2021 because of its ability to generate income from cryptocurrencies and stable coins, as well as opportunities for decentralized and superior financial services. As such, capital once flowed into these assets in the 2017 alt-season and 2018 are now being redirected to the promising DeFi sector, which is largely hosted on the Ethereum network.
Why do projects become irrelevant?
While many of the above zombie projects started with potential, they were often started with a single trait or purpose: coins that focused on privacy or speed, or projects that provide a specific service like file sharing or asset issuance.
However, as Ethereum continues to be the go-to place for developers to create new features in crypto, many of those features or purposes have been built into the Ethereum ecosystem itself, making many Layer-One projects obsolete. The same goes for Bitcoin, whose developers continue to strive to realize faster and anonymous payments through projects like the Lightning Network and others.
Over the years, Ethereum has achieved what is known as the “network effect,” where all the services users need are in one place. Hence, it is more convenient to stay on a single network and only use one cryptocurrency to pay for these services. The most popular of these are DeFi’s revenue generation protocols such as Yearn.finance and Compound.
It’s also worth noting that many of the coins that hit their all-time highs in 2018 were competitors to Bitcoin and Ethereum. The two top cryptocurrencies have proven to be time-stable. Bitcoin’s superior security has stood the test of time when compared to competitors who have faced 51% of attacks on the networks.
On the other hand, the hype surrounding the first coin offers also played a major role in the relevance of these projects, as the cryptocurrency bubble of 2017 and 2018 brought the prices for these tokens to an unrealistic level.
Once the hype is over, the crypto community seems to have lost its appetite for these projects while some have been all but forgotten. Ilya Abugov, consultant at the DApp statistics aggregator DappRadar, told Cointelegraph: “Startups fail very often, so it is only natural that many projects from the wave of 2018 will not recover.”
Why are zombie projects still running?
While some of these projects are far from their all-time highs, they have seen gains during the current bull market, some of which have seen four-digit percentage gains.
Many projects are carried on by their investor community who believe in long-term success. Some of them have made progress in some functions or have shown success in the DeFi area.
However, it’s hard to say if this will last, especially as Ethereum continues to dominate the DeFi sector. According to Abugov, this could change soon as “it takes some time for useful DApps to be available on a platform. Ethereum had a head start. ” He added:
“It wouldn’t be surprising if some of the challengers showed significant activity this year. Market capitalization rankings show no developer activity. For some chains, the market may be trying to price in the prospects for future growth. “
Is DeFi here to stay?
With yesterday’s top altcoins no longer in the spotlight, the DeFi sector continues to take the world by storm. Projects like Aave, Uniswap and SushiSwap are among the top winners in January and have increased over 200% in the last 30 days. Isa Kivlighan, Digital Marketing Manager at Aave, told Cointelegraph that “DeFi is just getting started” adding:
“According to the latest trends in the TradFi area, people are not demanding permissionless funding with any of the traditional, exclusive ‘gatekeepers’. DeFi is becoming more accessible to the mainstream every day. “
The initial DeFi boom in Q1 2020 was linked to lots of hyped projects, some scams, carpet pulls and hacks, and some compared it to the 2017-2018 ICO craze when worthless projects were pumped for no apparent reason other than pure speculation .
While the hype is still part of the current scenario, DeFi’s second surge appears to be fueling promising projects with an already working product, with projects ahead of DeFi still lagging behind, as Dr. Octavius, co-founder of the DeFi OctoFi protocol, told Cointelegraph:
“The vast majority of the most active market participants weathered the storm and are now well equipped with a crypto quiver. Your duty of care goes beyond skimming a white paper, and that’s because there are real products now. There’s nothing like getting your hands dirty and taking something apart to see how it works. Or just press the wrong button and watch it explode in your face. “
Meanwhile, new sectors of the cryptosphere have gained in importance, particularly non-fungible tokens. These types of tokens allow non-virtual or physical assets to be represented in a digital environment, making it easier to prove ownership, transactions, and sales. NFTs are widely used to represent in-game items, digital works of art, and more.
Related: The Perfect Match? Both Bitcoin and DeFi are pushing and pulling crypto markets
While NFTs may become more popular in the future, there seems to be a synergy between them and decentralized finance, where DeFi concepts like decentralized trading can be applied to the NFT sector and NFTs used to gamify DeFi apps, among other things can be other examples. Abugov believes DeFi will stay here despite the growth of other crypto sectors. He said to Cointelegraph:
“DeFi is a sector and it’s not going away, just like the L1 infrastructure didn’t go away because many L1 projects were unsuccessful. The competitive landscape may be changing, but DeFi has key utilities in the market, so it will stay here. ”