Q2'21 Sector Reviews
In the second quarter of 2021, crypto market prices soared dramatically to all-time highs. However, just as quickly as they rose, they crumbled back to pre-bull run values. With more attention focused on crypto than ever before, outside forces played a much larger role in market performance - with interference coming from Elon Musk’s Twitter (also here) account, Tesla’s acceptance (then denial, then acceptance again) of Bitcoin, reiterated bans from China, various DeFi hacks, and much, much more.
Over the quarter, both Robinhood and Coinbase filed for IPOs, even following the controversy surrounding Robinhood pausing the trade of GameStop stock earlier this year. El Salvador became one of the first countries to accept Bitcoin as legal tender, citing the country’s volcanoes as the primary energy source for mining. The United States fell victim to multiple cyberattacks, including the Colonial Pipeline, which was held ransom for 75 BTC (~$4.4M at the time). And finally, many institutions swore off crypto at the beginning of 2021, but as time went on, announcements for various new digital asset/crypto departments rolled out. Many institutions also began investing in top assets such as Bitcoin and Polkadot.
To wrap up this wild rollercoaster that was the second quarter of 2021, our Messari Research Analysts broke down each individual sector’s performance over the past few months. The following reports provide readers with in-depth analyses of historical data as well as personal insight from each analyst, and potential trends for the future.
Below, you’ll find a deep dive into DeFi by Roberto Talamas and Ryan Watkins, as well as an exploration into Web3 and NFT explosions by Mason Nystrom. Mason additionally analyzes liquid portfolios of crypto funds, Mira Christanto breaks down the performance of the Currencies, and Wilson Withiam and Roberto review Layer-1 protocols.
Q2’21 DeFi Review
Continuing its momentum from the DeFi Summer of 2020, most DeFi metrics reached all-time highs mid-way through Q2. However, as broader crypto markets turned, DeFi was not immune. In many cases, DeFi protocols saw activity decrease in the second half of the quarter as speculation in markets died down.
Over the quarter, decentralized exchange volumes grew to $40B - 117x the volume traded in 2020 and +83% from Q1. Derivatives (+155% since Q1) and Stablecoins (+70% since Q1) also grew significantly, however lending platforms trailed behind increasing only +15% quarter-over-quarter. Many layer-2 scaling solutions were announced over the past few months, and several high-profile protocols launched major upgrades leaving investors hungry for more.
Get the full report from Ryan Watkins and Roberto Talamas as they break down DeFi sector by sector, diving into key performance indicators, market developments, and key things to look out for in the quarters ahead.
Web3 & NFT Q2’21 Report
The media narrative that the NFT market is dead or that the bubble has popped is objectively mistaken. While the media focused primarily on crypto art and collectibles (e.g. NBA Top Shot), the broad NFT ecosystem continued to grow. In June, NFT exchange site OpenSea saw its best month ever in terms of trading volume, facilitating over 211,000 NFT sales across nearly 40,000 active traders.
Additionally, NFT avatars continued to excel in their own space. These avatars -- collectibles specifically designed for individuals to represent themselves across the internet (e.g. CryptoPunks) – continued to grow in popularity as the emerging sector generated nearly $350 million in secondary sales throughout Q2’21 and nearly $600 million in the first half of 2021.
Over the past few months, Web3 has become more widely adopted. Many Web3 protocols and NFT exchanges saw a large increase in membership and an even larger increase in revenue over Q2. To learn more about this sector’s explosive growth, read the full article by Mason Nystrom.
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2Q’21 Currency Sector Recap
The second quarter of 2021 was a tale of two halves in one of the most eventful quarters of the Currency sector’s history. In the first half, we saw the public listing of Coinbase as well as all-time high records for Bitcoin and other currencies. Institutional investors and banks moved to announce their involvement in the digital assets sphere, pouring equity capital into the sector and launching new initiatives to get clients on board.
Meme coins took off (to the moon!), led by $DOGE and several other projects that trading communities rallied around. Sadly, the fun was short-lived as the market began to correct itself, starting with massive sell-offs that sent Bitcoin tumbling back to the $35,000 range, almost half of its record high from weeks before.
In her recap of the Currency Sector’s performance in Q2, Mira breaks down the leaders and the losers, what we need to leave behind and what we can look forward to for the future. Get the full breakdown in Mira Christanto’s article, 2Q’21 Currency Sector Recap.
Q2'21 Layer-1 Review: A Peek at the Largest Ecosystems by TVL
The first quarter of 2021 marked the beginning of the long-awaited ecosystem wars. With crypto markets continuing to attract mainstream attention, newfound retail entrants pushed Ethereum’s fees to all-time highs. The surge in demand was a net positive for the industry but rendered Ethereum unusable for most retail users, prompting them to look for alternative options since the beginning of the year.
In a relatively short period of time, total value locked (TVL) in smart contracts went parabolic.
Newer, cheaper alternatives such as Binance Smart Chain and Polygon grew out of Ethereum’s decline, and brand new ecosystems like Solana and Cosmos were formed. Q2 was a time of major growth and development, and will likely lead to a very exciting Q3.
In their review of Layer 1 ecosystems, Roberto Talamas and Wilson Withiam break down the winners and the losers of L1, and which direction we can expect the ecosystems to move in the future. Read the story in their article, Q2'21 Layer-1 Review: A Peek at the Largest Ecosystems by TVL.
Messari Fund Analysis H1'21: Examining Liquid Portfolios of Crypto Funds
Of the thousands of cryptoassets, a few hundred tokens have circulating market capitalizations over $50 million. At least one hundred tokens have market caps over $500 million and a few dozen are unicorns. Smart money investors – venture capital funds, hedge funds, mercenary liquidity providers – are making bets across DeFi, NFTs, Web3, and The Metaverse at various stages of growth (all the way from sub $50 million to well over $1 billion).
To wrap up the first half of the year, Mason tracked down many of the top venture capital (VC) firms and hedge funds in crypto and recorded their liquid portfolios (assets that trade on the market). In total, his analysis shows that combined, forty-four funds hold 225 unique assets across various sectors including smart contracts, DeFi, Web3, Scaling, Interoperability, and NFTs.
In his analysis of funds in H1, Mason Nystrom breaks down several different portfolios of major funds in order to decide which solutions have the most potential across various sectors. Get the full analysis in his latest article, Messari Fund Analysis H1'21: Examining Liquid Portfolios of Crypto Funds.
About the authors:
Ryan Watkins is a Senior Research Analyst at Messari, having joined the team in late 2019. Prior to his time at Messari, Ryan interned at CoinDesk under Messari Co-Founder and CEO Ryan Selkis and also worked as an Investment Banking Analyst on Wall Street. After nearly two years of work in traditional finance, Ryan decided to take the leap into blockchain and cryptocurrencies, where he saw opportunity for innovation. Ryan graduated in 2018 with degrees in Computer Science and Finance. He also enjoys running and biking.
Roberto Talamas is a Research Analyst at Messari. Roberto specializes in DeFi and Macro evaluations, among other topics. He previously worked in traditional Finance in San Francisco, working in BlackRock’s asset management division before transitioning to risk management for multi asset portfolios. Following his time at BlackRock, he briefly worked for a hedge fund focusing on data development and programming. Roberto graduated in 2017 from the University of Texas at San Antonio. He’s extremely passionate about the Python programming language and in his free time enjoys rock climbing and snowboarding.
Mason Nystrom is a Senior Research Analyst at Messari. Mason’s primary expertise and focus is on Web3, including categories such as NFTs, Metaverses, Social Tokens, and other emerging trends. Previously he worked at blockchain software company ConsenSys, where he focused on marketing strategy for the firm’s portfolio companies. Before joining ConsenSys, Mason worked as a business analyst at Gatecoin, the first cryptocurrency exchange to list Ether, Ethereum's native cryptocurrency. Mason is a cold brew aficionado who loves writing, and reading everything by Morgan Housel.
Mira Christanto is a Senior Research Analyst at Messari. Prior to joining Messari, Mira was a Senior Portfolio Manager for a US $6 billion Asia Pacific equities fund at APG Asset Management. Before that, she was an Associate at US $15 billion hedge fund TPG-Axon Capital and an Investment Banking Analyst at Credit Suisse. Mira received a BA in Economics and Mathematical Methods in the Social Sciences from Northwestern University. In her free time, Mira enjoys playing tennis and preparing for her next triathlon.
Wilson Withiam is a Senior Research Analyst at Messari. Prior to Messari, Wilson was an analyst at Circle Research, where he was one half of the team focused on producing weekly updates and in-depth quarterly reports on cryptoassets. He also helped launch an organization dedicated to educating blockchain application developers. Wilson holds a degree in Kinesiology but abandoned med school to work with emerging technologies. In his free time he enjoys working out and baseball (both playing and watching).