The outbreak of the COVID-19 pandemic in early 2020 had devastating effects on both human lives and the global economy. The cryptocurrency market was not spared, experiencing a significant decline in March of that year. Bitcoin (BTC) lost 52% of its value in a single day, while Ether (ETH) lost 43%, causing a major shake-up in the decentralized finance (DeFi) sector.
However, the lockdowns that followed had a slower but more profound impact on the crypto industry. As people around the world were confined to their homes, screen time increased, leading to a surge in interest in cryptocurrencies and a subsequent 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. Early pioneers in this field were MakerDAO and Compound. In June 2020, Compound introduced yield farming, a method of maximizing interest, fees, and rewards by shifting crypto assets. This practice quickly became the norm in the industry.
Compound also played a crucial role in the decentralization movement. Its governance token, COMP, was the first of its kind, allowing users to directly participate in the management of decentralized autonomous organizations (DAOs). By the end of the year, decentralization was well underway in many DAOs.
By September 2020, the collateral levels in the DeFi sector had surged from $700 million to $9 billion compared to the beginning of the year. Around the same time, decentralized exchanges (DEXs) gained prominence. OasisDEX, launched in 2016, and Uniswap, established in 2018, were early examples of DEXs that allowed users to trade crypto assets directly without intermediaries. These DEXs paved the way for the emergence of automatic market makers, which took advantage of yield farming.
All these developments led to a “bubble” in the crypto industry, known as the DeFi Summer of 2020, characterized by a period of rapid price increases.
In addition to the DeFi boom, 2020 also marked the occurrence of the third Bitcoin halving on May 11. This event, which happens approximately every four years, reduces mining rewards by 50% after a certain number of Bitcoins have been mined. The halving is designed to prevent inflation and increase demand for Bitcoin by slowing down its production. The price of BTC was around $8,800 during the third halving, and it started to experience significant price growth from October, reaching $63,000 by April 2021.
The year 2021 was defined by the rise of nonfungible tokens (NFTs). NFTs are unique digital items recorded on a blockchain. While the concept of NFTs had been around for several years, it was in 2021 that the market exploded in popularity. NFTs became instrumental in the tokenization of real-world assets and found applications in ticketing, licensing, gaming, identity verification, music, and various other sectors. Initially, NFTs gained traction in the gaming, collectibles, and artwork industries.
CryptoKitties, launched in 2017, was an early example of the use of NFTs for collecting, trading, and breeding virtual cats. The game caused congestion on the Ethereum blockchain and gained significant attention in 2020. Another notable NFT series, CryptoPunks, was also released in 2017.
In April 2021, the Bored Ape Yacht Club line of NFTs was launched and quickly sold out, raising $3 billion. Later, in August 2021, Yuga Labs introduced the Mutant Ape Yacht Club, which 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 witnessed an astronomical increase of nearly 40,000% from 2019 to 2021, although it experienced a significant decline in 2022. Despite this decline, the revenue from NFTs is expected to continue growing and reach $2.4 billion by 2024. OpenSea, a marketplace established in 2017, dominated the NFT market at the beginning of 2022, but its trading volume declined by 99% during the year.
In summary, the COVID-19 pandemic had a profound impact on the crypto industry, leading to both challenges and opportunities. The DeFi sector experienced a significant shake-up, while NFTs emerged as a major trend in 2021. The future of the crypto industry remains promising, with continued advancements and innovations expected in the coming years.