Data from crypto analytics firm Messari shows that many of the projects once favored by the market are still far from their all-time high. Matt Casto, an analyst at CMT Digital, tweeted a compilation of 410 crypto assets that hit their all-time high in 2017 or later, with an average loss of 65.71% for all projects combined.
Of the 410 assets analyzed, 157 reached their all-time high in 2018 after losing since then it averaged 90.71% in value. An additional 67 assets hit their all-time high in 2019 and have since lost 73.33%. In contrast, projects that hit their all-time high in 2021 have lost only 13.82% of their value.
According to Casto, holding assets that have hit their all-time high in the last three years is “a huge missed opportunity cost of deploying capital.” The data illustrates 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, they are still a long way from their all-time high, as the data shows. Meanwhile, tokens in the DeFi ecosystem have consistently hit their all-time high, showing that many of these coins have their best days yet to come at the expense of the zombies.
The big price adjustment
While Bitcoin (BTC), the oldest cryptocurrency, has continued to rise over the years, most others “Old” coins have not shown the same trend. Messari data further confirms the concept of the “major price revision,” which states that many of the best altcoins on the market will be replaced by newer sectors such as decentralized financing.
When asked about the great price change, Ryan Watkins, senior research analyst at Messari, told Cointelegraph that it is “definitely not just hype,” but rather “real fundamentals, high growth, strong product-market fit.”
These once-common altcoins become known as “zombie projects” and are mostly layer-one blockchain protocols, many of which compete directly with Bitcoin and Ethereum, either as a form of currency or as platforms for the issuance of assets, smart contracts and more. With both BTC and Ether (ETH) while retaining their relevance, many of these projects are now widely regarded as obsolete or failed.
As for DeFi, the ability to generate returns from cryptocurrencies and stablecoins, along with the capabilities for decentralized and superior financial services, makes it one of the most interesting (and risky) investment choices of 2021. As such, the capital ever invested in these assets during the 2017 and 2018 alt season are now being routed to the promising DeFi sector, most of which are hosted on the Ethereum network.
Why do projects become irrelevant?
While many of the zombie projects mentioned above started with potential, they were often launched with a single feature or purpose in mind: coins that focused on privacy or speed or projects that provide a specific service, such as file sharing or asset issuance.
However, as Ethereum is still the go-to place for developers to create new functionalities in crypto, many of these functions or purposes have been incorporated into the Ethereum ecosystem itself, making many layer-one projects obsolete. The same can be said for Bitcoin, whose developers continue to strive to achieve faster and anonymous payments through projects such as the Lightning Network and more.
Over the years, Ethereum has amassed the so-called ‘network effect’, where all the services users need are found in one place. Therefore, it is more convenient to stay within a single network and use only one cryptocurrency to pay for these services, the most popular of which have become DeFi’s revenue-generating protocols, such as Yearn.finance and Compound.
It’s also worth noting that many of the coins that hit their all-time high in 2018 were competitors of Bitcoin and Ethereum. The two main cryptocurrencies have been found to be resistant to the test of time. Bitcoin’s superior security has proven itself compared to competitors who have been victims of 51% attacks on the networks.
On the other hand, the hype surrounding the initial supply of coins also played a big part in making these projects relevant, for starters, as the 2017 and 2018 cryptocurrency bubble pushed the prices of these tokens to unrealistic levels.
Once the hype is over, the crypto community seems to have lost the appetite for these projects, while some are almost forgotten. Ilya Abugov, advisor with DApp statistics aggregator DappRadar, told Cointelegraph, “Startups are failing at a very rapid rate, so it is only natural that many of the projects from the 2018 wave will not recover.”
Why are zombie projects still going on?
Despite being far from their all-time high, a small number of these projects have shown gains during the current bull market, with some showing a four-digit percentage gain.
Many projects are kept going by their community of investors who believe in long-term success. Some of these have progressed in some features or shown success in the DeFi realm.
However, it’s hard to say if this will last, especially as Ethereum continues to dominate the DeFi sector. According to Abugov, this can change quickly because “it takes a while for useful DApps to appear on a platform. Ethereum had a head start. He further added:
“It wouldn’t be surprising if some challengers start showing meaningful activities this year. Market caps do not show developer activity. For some chains, the market may try to price in the prospect of future growth. “
Is DeFi here to stay?
As the best altcoins of yesteryear fade from the spotlight, the DeFi sector continues to take the world by storm with projects like Aave, Uniswap and SushiSwap among the top. gainers in January, an increase of more than 200% in the past 30 days. Isa Kivlighan, digital marketing manager at Aave, told Cointelegraph that “DeFi has only just started,” adding:
“Following recent trends in the TradFi space, people are asking for unauthorized funding without the traditional exclusive ‘gatekeepers’. DeFi is becoming more accessible to the mainstream every day. “
The initial DeFi boom in the first quarter of 2020 counted with many overhyped projects, some scam, rug pulls and hacks, and a little compared it to the ICO craze of 2017-2018 when crappy projects were pumped for no apparent reason other than pure speculation.
While the hype is still part of the current scenario, DeFi’s second wave seems to favor promising projects with an already working product, with pre-DeFi projects still lagging behind, such as Dr. Octavius, co-founder of DeFi protocol OctoFi, told Cointelegraph:
“A vast majority of the most active market participants have weathered the storm and are now well equipped with a crypto quiver. Their due diligence 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 hit the wrong button and watch it blow up in your face. “
Meanwhile, new sectors of the cryptosphere are gaining traction, especially intangible tokens. These types of tokens allow intangible assets, whether virtual or physical, to be displayed in a digital environment, enabling proof of ownership, transactions and sales. NFTs are often used to represent in-game assets, digital artwork, and more.
While NFTs may become increasingly popular in the future, there seems to be a synergy between them and decentralized financing, where DeFi concepts, such as decentralized trading, can be applied to the NFT sector and NFTs can be used to other DeFi apps examples. Abugov believes DeFi is here to stay, despite the growth of other sectors in crypto. He told Cointelegraph:
“DeFi is a sector, and it is not going away, just as the L1 infrastructure did not go away because many L1 projects were not successful. The competitive landscape may change, but DeFi delivers essential utilities to the market, so it’s here to stay. “