The COVID-19 pandemic had a devastating impact on both human lives and the global economy when it emerged in early 2020. The world of cryptocurrency also suffered, as the cryptocurrency market experienced a significant decline in March of that same year. Bitcoin (BTC) lost 52% of its value in a single day, while Ether (ETH) lost 43%, causing a major disruption in the decentralized finance (DeFi) sector.
The subsequent lockdowns had a slower but more profound effect on the crypto industry. As people were confined to their homes, screen time increased significantly, leading to a surge in interest in cryptocurrency and a corresponding rise in market capitalizations. This resulted in the rapid 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. Market leaders such as MakerDAO and Compound paved the way for this decentralized financial revolution. In June 2020, Compound introduced the concept of yield farming, also known as liquidity mining, which involved shifting crypto assets to earn the highest interest, fees, and rewards. This practice quickly became common in the industry.
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, many DAOs were well on their way to achieving decentralization.
By September 2020, the total value of collateral in DeFi had surged from $700 million to $9 billion. During this time, decentralized exchanges (DEXs) also played a crucial role. OasisDEX, launched in 2016, and Uniswap, introduced in 2018, allowed users to trade crypto assets directly without the need for intermediaries. These DEXs gave rise to automatic market makers, which took advantage of yield farming opportunities.
All of this activity led to a “bubble” in the crypto world, commonly known as the DeFi Summer of 2020, characterized by a period of explosive price growth.
In May 2020, just before the DeFi Summer began, the third Bitcoin halving took place. This event involves reducing mining rewards by 50% after every 210,000 BTC are mined. In 2020, the block mining reward was reduced to 6.25 BTC. The halving aims to prevent inflation by slowing down the pace of mining and increasing demand by reducing production. Bitcoin was trading at around $8,800 during the third halving. It experienced modest gains in July and August 2020 and began a significant upward price trajectory in October, reaching $63,000 by April 2021.
In 2021, non-fungible tokens (NFTs) took center stage. NFTs are unique digital items recorded on a blockchain. Although they have been around for several years, it was in 2021 that the market for NFTs truly exploded. NFTs have been used for various purposes, including ticketing, licensing, gaming, identity verification, and music. Their earliest applications were in gaming, collectibles, and artwork.
CryptoKitties, developed by Dapper Labs and launched in 2017, was an early example of NFT use. The game allowed users to collect, trade, and breed digital virtual cats using NFTs. This game caused significant congestion on the Ethereum blockchain, peaking in 2020. Another notable NFT series, CryptoPunks, was also released in 2017.
In April 2021, the Bored Ape Yacht Club (BAYC) collection was launched, featuring 10,000 unique NFTs. Creator Yuga Labs managed to sell all of them by the end of the month, raising $3 billion. In August 2021, the lower-cost Mutant Ape Yacht Club was introduced and is still being minted.
The number of NFT users grew from around 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 increased by nearly 40,000% from 2019 to 2021 but experienced a significant decline in 2022. OpenSea, a leading NFT marketplace founded in 2017, dominated the market in early 2022 but saw a 99% decrease in trading volume throughout the year. Despite this, revenue from NFTs continues to grow, and it is projected to reach $2.4 billion in 2024.