CryptoRank, a leading provider of cryptocurrency market data and analytics, has reported that the first quarter of 2023 saw rapid growth in the cryptocurrency market, similar to the pace of the pre-FTX-crash era. This indicates that the tough days of 2022’s market are in the past. However, Q1 2023 did not pass without problems. The most worrying one came from outside DeFi, the commotion in Traditional Finance (TradFi). The banking crisis posed a great threat to the crypto markets. As crypto is still mostly an investment instrument, the global financial market’s fight with inflation that could lead to a recession will hurt crypto. The threat could be deflected, but these conditions tend to create a hostile market for crypto in a way. However, from another perspective, the challenges of TradFi can also stimulate the adoption of crypto and trust in crypto.
Despite the challenges, several cryptocurrencies showed commendable growth in Q1 2023. Among the top ten performers were Bitcoin, Solana, Lido, and Aptos. Bitcoin’s moment was marked by the performance of BTC through the weeks of collapsing banks. It was at this point that BTC marked its dominance as one of the highest points in almost a year. Next was Solana, which made a head-turning comeback, after performing poorly in Q3 due to its strong bonds with FTX. Surprisingly, it showed 109% gains in Q1. The next in line was Lido, with a growth of 134%. The last was Aptos, with an exemplary increase of 230% in this quarter.
Despite several incidents such as USDC being de-pegged from $1, BUSD being banned by the government, and the suitcases against crypto firms and entities, the market remained strong. Thanks to the market recovery and strong growth in particular ecosystems, many projects showed commendable numbers this quarter. DeFi was one of the best-performing categories of Q1 overall, especially decentralized exchanges. Other projects, such as those based on Layer 2 Arbitrum and Optimism blockchains, performed better than others, such as Camelot, Radiant, Capital, Velodrome, and Gains Network.
The first big airdrop happened in February by Blur, one of the biggest NFT marketplaces that airdropped about $300 million worth of tokens. With this action, Blur surpassed OpenSea, the largest NFT marketplace. March had even bigger airdrops, as Arbitrum announced the airdrop plan and launch of the DAO. With its success, ARB seamlessly got into the top 50 and held a strong position.
DeFi started on the path of recovery as the market improved. The latest trend in DeFi is liquid staking, which is the key element of Proof-of-Stake networks. Liquid staking has many benefits to its credit – it’s a significant source of income for thousands of validators and delegators. The Shapella update is now enabling ETH withdrawals, increasing the popularity of liquid staking. Lido and Rocket Pool (NASDAQ:POOL), the derivative coin, showed outstanding performances in the first months of 2023. Arbitrum, Solana, and Optimism showed a notable increase in total value locked (TVL) in Q1 2023 as Ethereum retained the leading position among the blockchains with a noticeable gap from Tron and others.
In terms of combined TVL, liquid staking protocols were the second after DEXs having surpassed Lending and Borrowing protocols. A total of over $16 billion in TVL combined was second to DExs 759 protocols. This means that the total value locked increased by nearly 40% since the start of the year. Protocols based on Layer 2, such as Camelot, Velodrome, and Gains Network, saw a sizable increase in total value locked. Lightning Network showcased an outstanding performance thanks to the growing adoption of Bitcoin as a means of payment.
Trading volume of DEXs experienced an approximate 30% increase in the first quarter of 2023 after two quarters of decline. Also, the DEX/CEX ratio has now increased to a level similar to November 2022. It is observed that while the DEX/CEX ratio remains 4% below the January 2022 all-time high, the rising popularity of blockchain tech may propel this indicator to new record levels.
Layer 2 blockchains are estimated to gain more traction among crypto users in 2023, with the initial attention being drawn towards Optimism, which offered a substantial airdrop to the wider crypto crowd. Following that, Arbitrum gained recognition for its incentivizing activity called the Arbitrum Odyssey. The launch time of these Layer 2 blockchains was impeccable as it came at a time the users benefitted from the features they offered – all the benefits of Ethereum but with faster transaction times, lower costs, and higher capacity.
At the start of this year, the Layer 2 landscape shifted once again, thanks to the airdrop from Arbitrum. Soon after the ARB airdrop, zkSync announced the launch of the first zkEVM mainnet, called zkSync Era, which generated a lot of interest and drove transaction numbers to new heights. After which, Polygon launched its highly anticipated zkEVM as a mainnet beta. ConsenSys, a major player in the crypto industry, has recently unveiled its zkEVM public testnet, named Linea. Furthermore, Coinbase (NASDAQ:COIN) has launched its own Layer 2 network, known as Base. Even though we are still in the early stages of Layer 2 tech, there is great potential for the emergence of new and exciting rollups.
The trend has been gradually reversing for fundraising activities as opposed to the significant drop that it experienced following the FTX collapse. In February 2023, token sale activities saw a significant boost. This positive trend continued into March, with monthly fundraising exceeding that of May. While initial exchange offerings (IEOs) brought the highest returns to token sale participants, initial decentralized offerings (IDOs) were more prevalent. The top 10 projects by current return on investment (ROI) indicate that AI projects performed exceptionally well, with Space ID being one of the best performers on Binance.
Projects on Arbitrum raised the most funds, followed by Solana and Ethereum. This is an indication that the Layer 2 blockchain is gaining traction among investors. The growth of Solana is also noteworthy, as it has been able to recover from the FTX crash and establish itself as one of the top-performing cryptocurrencies in Q1 2023.
In conclusion, the first quarter of 2023 has been a mixed bag for the cryptocurrency market. While there were challenges from outside DeFi, the market has shown resilience and strong growth in particular ecosystems. DeFi has been one of the best-performing categories of Q1 overall, especially decentralized exchanges. Layer 2 blockchains have gained significant traction among crypto users, with Optimism and Arbitrum leading the pack. The trend has been gradually reversing for fundraising activities, indicating that the market is recovering from the FTX collapse. Overall, the cryptocurrency market is poised for growth in the coming months, and investors can expect to see more exciting developments in the near future.