The COVID-19 pandemic brought chaos to both human lives and the global economy in early 2020. The cryptocurrency market also suffered a significant blow, with Bitcoin (BTC) losing 52% of its value in a single day and Ether (ETH) dropping by 43%, causing a major shakeup in decentralized finance (DeFi).
However, the subsequent lockdowns had a slower yet profound impact on the crypto industry. As people were confined to their homes, screen time increased, leading to a surge in interest in cryptocurrencies and a rise in market capitalizations. This surge in interest also prompted the development and implementation of emerging technologies at an unprecedented pace.
The journey of DeFi began in 2017 with the introduction of smart contracts on the Ethereum blockchain. Early market leaders like MakerDAO and Compound paved the way for the growth of DeFi. In June 2020, Compound introduced yield farming, a method of maximizing interest, fees, and rewards through arbitrage with crypto assets. Yield farming quickly became a common practice.
Compound also played a pioneering role in decentralization by introducing COMP, the first governance token that allowed users to directly participate in the management of decentralized autonomous organizations (DAOs). By the end of the year, decentralization had become a significant trend in many DAOs.
The collateral levels in DeFi skyrocketed from $700 million at the beginning of the year to $9 billion by September 2020. This exponential growth led Bloomberg to comment on the decentralized exchanges (DEXs) that played a crucial role in the DeFi ecosystem. DEXs like OasisDEX and Uniswap, which allowed peer-to-peer trading of crypto assets without intermediaries, gained prominence. This, in turn, gave rise to automatic market makers that took advantage of yield farming.
All these developments led to a “bubble,” commonly known as the DeFi Summer of 2020, characterized by a period of explosive price growth in the crypto industry.
Another significant event in 2020 was the third Bitcoin halving, which took place on May 11, just before the DeFi Summer. The halving is an event that occurs every time 210,000 BTC is mined, reducing mining rewards by 50%. This event aims to prevent inflation by slowing down mining and increasing demand. BTC was priced around $8,800 during the third halving. It experienced modest gains in July and August and started a significant upward price trajectory in October, reaching $63,000 by April 2021.
2021 marked the rise of non-fungible tokens (NFTs), unique digital items on a blockchain. Although NFTs had been around for several years, it was in 2021 that the market truly took off. NFTs became the driving force behind the tokenization of real-world assets, finding applications in ticketing, licensing, gaming, identity verification, music, and various other sectors. The earliest uses of NFTs were in gaming, collectibles, and artwork.
CryptoKitties, a game developed by Dapper Labs in 2017, was one of the early examples of NFTs. It allowed users to collect, trade, and breed digital virtual cats. The popularity of NFTs led to congestion on the Ethereum blockchain, with the CryptoPunks series of collectibles also gaining attention in 2017.
The year 2021 witnessed a significant surge in NFT users, with their numbers growing from 120,000 in 2017 to 1 million in 2020, 3.5 million in 2021, and 9.9 million in the following year. Revenue from NFTs experienced a staggering 40,000% growth from 2019 to 2021. However, in 2022, there was a decline in NFT market activity, with OpenSea, the leading marketplace, experiencing a 99% drop in trading volume. Nevertheless, revenue from NFTs continues to grow, and it is projected to reach $2.4 billion by 2024.
In conclusion, the COVID-19 pandemic had a profound impact on the crypto industry, leading to a significant drop in the market but also driving increased interest and the development of emerging technologies. The rise of DeFi, the Bitcoin halving, and the explosion of NFTs were all major milestones in this ever-evolving industry.