Executive Summary

2022 has been a tumultuous year for cryptocurrencies. The total crypto market capitalization in 2022 opened the year at $2.2 trillion in January and subsequently hit an annual low of $1 trillion in November. (pg 13)


Bitcoin’s price fell below its 2017-cycle high in June for the first time since January 2021. Although bitcoin’s price dropped 64.1% year-to-date, its dominance remains stable at 40% of total digital asset market capitalization. (pg 13)


All of the top ten cryptocurrencies by market capitalization experienced negative price returns as low as 81%. Nevertheless, exchange-associated tokens such as BNB and OKB and memecoins like DOGE performed better than BTC and other layer-1 protocols. (pg 13)


As the market experienced a steep downturn, stablecoins became the exit gateway. The annual stablecoin adjusted transaction volume crossed $7.2 trillion in 2022, a 19% year-on-year growth, yet the aggregate stablecoin supply contracted 2.4% to $140 billion year-to-date. The discrepancy between high transaction volume and shrinking supply suggests that crypto market participants may have cashed out to fiat. (pg 15)


Binance stablecoin BUSD challenged Tether’s USDT on centralized exchanges. Although Tether remains the most popular trading pair denomination for centralized exchange trading, its volume dominance fell from 64% in January to 59% in November. In contrast, BUSD is the only pair to have increased its market share this year, from 8% to 15%, as it accounted for 75% of all legitimate spot volume at the end of November 2022. (pg 15)


The year began with monthly cryptocurrency spot volumes breaking below the $1 trillion mark, a mark that was surpassed nine times in 2021. According to The Block’s legitimate volume index, volume dropped 20% from $841 billion in January to $673 billion in November. Yet, Binance managed to consolidate its market share from 60% to 75% over the same time period. (pg 16)


The digital asset derivatives market primarily declined over the past year. Last-twelve-months, Bitcoin futures volume decreased by 52%, more than Ethereum futures’ 28% decline. For the first time, Ethereum futures exceeded Bitcoin futures volume in August 2022 with a 7% margin, before contracting in the subsequent months. (pg 18)

As bitcoin’s price more than halved throughout the year, many miners faced increasing financial distress. Many miners kept a portion of their mined bitcoins in their respective treasuries. 15 publicly-traded bitcoin firms tracked by The Block mined a total of 33,800 bitcoins worth over $550 million. (pg 24)

Uproar amidst the increasing Flashbots dominance in relaying Ethereum blocks. Flashbots recently introduced “MEV-Boost” to provide validators access to an off-chain marketplace for block-building. Flashbots MEV-Boost currently proposes 62% market share of blocks proposed. This poses a problem as Flashbots’ software was confirmed to be OFAC-compliant, rejecting any transactions that engaged with Tornado Cash and other sanctioned addresses. (pg 24)

Number of funding deals increased 18% year-on-year to 2,201 deals. However, its 2022 growth decelerated compared to that of 2021, which increased by 150% in a single year. The amount raised in 2022 saw a 7% increase year-on-year to $30.9 billion. (pg 28)


North America, Asia, and Europe were the continents where crypto activity was most concentrated in the past 6 years. 95% of the total amount raised at $75.9 billion is attributable to deals in these continents. (pg 29)


NFTs/Gaming vertical attracted the most funding this year. The vertical raised $8.3 billion in 2022, a 51% year-on-year increase. Half of these investments were in VR/metaverse, blockchain-based gaming, and game studio subcategories. Most of the deals reflected seed and pre-series A stages. (pg 36)


75% of the total amount transacted in M&A in the last two years reflects pre-existing crypto native players. This suggests changing operational dynamics for category-leading players as they acquired smaller players in the market to weed out competition and diversify into an entity providing a full range of product/service suites. Coinbase and Animoca Brands led the race with 30 and 22 acquisitions, respectively. (pg 45)


Number of employment in the digital asset industry has jumped over 351% since 2019. Based on The Block Research’s database, 421 firms employ 82,248 people within the industry, compared to only 18,200 from 158 companies in 2019. Half of the 2022’s employment are within the Trading/Brokerage category. (pg 49)


The number of layoffs in 2022 was the highest at 9,564. Volatility in the crypto market was widely felt within its job market as Crypto.com contributed 2,260, or 24%, to total attrition. Meanwhile, Coinbase, Kraken, and Bybit each laid off ~1,000 employees. (pg 52)

Ether daily net issuance turned negative a month after The Merge. However, the transition to proof-of-stake made former Ethereum miners irrelevant and Ethereum security is now dependent on ether price. Ether supply stood at 120 million as of end November. (pg 57)


Layer-1 token valuations fell sharply in 2022 alongside the broader drawdown in crypto and traditional equities markets. The drawdown directly impacted value locked in DeFi across Layer-1 ecosystems, contributing to diminished growth and yield opportunities. Value locked in Layer-1 DeFi peaked at ~$228 billion in December 2021, declining ~72% to around $58 billion as of end November. (pg 58)


Emergence of application-focused chains. Although EVM continued to dominate among smart contract platforms, there is a high demand in abstracting away blockchain complexities, as reflected in Cosmos ecosystem, Avalanche subnets, and Polkadots’s parachains. (pg 62)

Adoption of Ethereum-based rollups is currently dominated by Optimistic rollups. The success of Arbitrum and Optimism were primarily contributed by GMX and the launch of OP token, respectively. (pg 76)


Arbitrum, Optimism, and dYdX largely dominate the overall landscape for Ethereum-based scaling solutions. That said, value locked across all scaling solutions declined 24% throughout 2022, from $6 billion to $4.5 billion at the end of November. (pg 76)


Developments of various solutions to improve blockchains’ throughput. There were many scaling solutions that have seen significant development, from data availability solutions like Celestia, to zkEVM efforts like zkSync, Scroll, and Polygon Hermez. The current scaling efforts are predominantly Ethereum-based or data availability-based. (pg 79)


Adoption of validity proof Layer-2s is currently limited to the Validium approach. Validium utilizes off-chain data availability and has been popularized by StarkWare by facilitating the launch of several application-specific Layer-2s such as dYdX, ImmutableX and Sorare. Generalizable zero-knowledge rollups are awaiting the mainnet launch of zkSync 2.0, StarkNet, and several zero-knowledge rollup solutions from Polygon. (pg 79)


Value locked in cross-chain bridges has fallen significantly in 2022. The metric peaked at over $58 billion in January, declining by ~90% to $6 billion as of end November. The decline was primarily because the value of assets held in bridges fell in prices, and numerous bridge exploits happened throughout 2022, including the $600 million Ronin hack, the $323 million Portal exploit, and the $100 million Horizon bridge attack. (pg 96)

DeFi space experienced a contraction in 2022. Value locked in DeFi decreased 74.6% from $166 billion to $42.1 billion. Terra’s ecosystem collapse in May marked the most drastic crash in value locked. (pg 102)


DeFi activities slowed down as reflected by less active users throughout 2022. Using decentralized exchange trading activities as a proxy for DeFi activities, 8.9% of Ethereum transactions were decentralized exchange trades in November, up from 5.6% in July but down from 11.5% in January. (pg 102)


Revenue generated by DeFi protocols took a massive hit amid a more challenging economic environment. While Uniswap remained the leading protocol by revenue, with an annual revenue of $792 million in 2022, its monthly revenue sank from $134 million in January to $53.3 million in November. (pg 103)


2022 was a terrible year for algorithmic stablecoins. Although algorithmic stablecoins experienced rapid growth at the start of 2022, mid 2022’s catastrophic destruction halted this momentum, with contagion still rippling through every corner of the crypto space. UST, now known as USTC, was the largest algorithmic stablecoin before its collapse, with a market cap of $10.1 billion in January and $18.8 billion at its peak in May. (pg 109)


Liquid staking ramped up as Ethereum’s successful transition to proof-of-Stake during The Merge.
Year-to-date, Lido is the largest liquid staking protocol on Ethereum, almost tripled its TVL to 4.77 million ETH, with a market share of 76.1%. (pg 111)


Advancement of decentralized derivative protocols. 2022 saw several developments of various derivatives products and there are two popular products this year. First, GMX, an Arbitrum- and Avalanched-based decentralized perpetual exchange, with a TVL of $445 million, surpassing dYdX and Synthetix. Second, an exotic derivative Opyn Squeeth, a power perpetual indexed to the price of ETH raised to the second power, amassed $447 million volume since its inception in January. (pg 112)


2022 was a critical juncture for privacy protocols. OFAC sanctioned cryptocurrency mixers such as Bitcoin-based Blender.io and Ethereum-based Tornado Cash for their roles in allegedly facilitating money laundering for North Korean-linked Lazarus Group. The sanction led many Tornado Cash depositors to flee. Value locked in Tornado Cash reflects ~$111 million, a whopping 78% decrease year-on-year. (pg 115)

Although the public interest with “Web3” had been decreasing in 2022, it remained more popular than a year ago. The same can be said for the number of active addresses on Ethereum, which decreased by 20% to fewer than 420,000 since the beginning of the year. (pg 125)


The DAPP framework can be used to analyze the evolution of Web3 infrastructures (Door, Application, Primitive, and Protocol). Each layer helps identify the blockchain usage journey, beginning with accessing Web3 (door), connecting and interacting with blockchain via user-friendly interfaces (application), tools that facilitate a specific task behind the scenes (primitive), and finally, the blockchain architecture where applications are built (protocols). (pg 126)

Monthly NFT trading volume on Ethereum hit a new all-time high in January of $5.6 billion, breaking its previous record in 2021. However, in June, it registered the biggest month-on-month decline and continues sliding. (pg 142)


Solana contended Ethereum as a new home to NFTs. Solana NFTs experienced a renaissance that underscored their relative strength, resulting in a temporary market share of 46.2% in terms of NFT trading volume. Nevertheless, Ethereum defended its lion’s share position at 72.5% at November end. (pg 143)


Battle of creator royalties. NFT marketplaces had been fiercely competing for liquidity by circumventing creator royalties, allowing competitors to siphon liquidity from OpenSea and spawning zero-fee marketplaces such as Sudoswap, X2Y2, and Magic Eden. Zero-royalty trading volume jumped from 2.8% of total trading volume in January to 30% at November end. (pg 146)


Yuga Labs Empire. BAYC creator Yuga Labs went on an acquisition spree in 2022. In March, it acquired the intellectual properties of CryptoPunks and Meebits. Subsequently, it acquired Wenew, a startup founded by Beeple and the company behind 10KTF. Yuga Labs also launched Otherdeeds, its metaverse project, and airdropped ApeCoin to BAYC and MAYC holders. As a result, Yuga Labs boosted its volume dominance from 33.3% at the beginning of the year to a peak of 69.6% in early May. (pg 148)


2022 had been a seminal year for NFTs. There had been a myriad of developments throughout the year besides zero-creator royalty, such as an emergence of storytelling NFT, war on intellectual property rights, and new mechanism design spurred such as an on-chain game with an art factory. (pg 150)

The delay of AAA games. Although the number of Web3 games increased by 34% to 1,873 as of end November, many of the 2022-promised AAA-games have yet to be released, including Illuvium, Mirandus, and Star Atlas. (pg 159)


Diminishing play-to-earn games. Play-to-earn games demonstrated through Axie Infinity, StepN, Thetan Arena, and many others that they were neither sustainable nor market-proof, as GameFi experienced a 79% decline in 2022, worse than the overall market's 64.1% decline. (pg 161)


Proliferation of X-to-earn. As Web3 gaming evolves from Axie Infinity’s play-to-earn model, developers create novel gameplay mechanics in an effort to attract diverse audiences. Various “X-to-earn” spawned, such as move-to-earn, sleep-to-earn, and learn-to-earn. (pg 166)


Development of on-chain gaming. As a result of the infrastructure growth like Layer-2s, several new gaming primitives launched in 2022. We identified 40 on-chain games, primarily on StarkNet. This marks a staggering increase from the initial ~5 identified at the start of the year. (pg 166)

Prices of cryptocurrencies and digital assets have been primarily impacted with macroeconomic conditions and various market crises. These two market drivers are not independent. Rather, due to the Fed’s pivot into a tightening stance, external market pressures reversed last year’s “everything rally,” brutally punishing overexposure to risky strategies and their related counterparties. (pg 176)


The fall of Terra triggered the collapse of several powerful centralized crypto players. Six major players, Three Arrows Capital, Voyager, Celsius, FTX & Alameda Research, and BlockFi, who were intricately intertwined and (in some cases, appeared to) earn enormous returns during the bull cycle, were wiped out spectacularly as the market turned bearish. The reverberation continues to impact other players such as Gemini and Digital Currency Group. (pg 180)


Source: The Block Research