Decline in market capitalisation and L1 activity — Binance Q3 report

The research arm of the cryptocurrency exchange Binance published a report on the state of the cryptocurrency market for Q3 2023. According to the document, the three past months proved challenging — overall industry capitalisation fell by 8.6%.

Analysts attribute the negative momentum to high interest rates in the United States and their ongoing rise. Capitalisation fell despite a brief uptick after legal victories for Ripple and Grayscale Investments.

“In Q3, institutional adoption continued to gain momentum even as prices fell. Major companies such as Deutsche Bank, Sony, Grab and PayPal announced their involvement in Web3 initiatives,” Binance said.

The firm highlighted several assets that showed a positive trend. Bitcoin strengthened its position after a wave of spot exchange-traded funds based on it. Year-to-date, prices of digital gold rose by 63.1%.

Tokens XRP and SOL also showed noticeable growth. The former rose thanks to a partial victory in the Ripple Labs court case, and the latter on the backdrop of partnerships with Visa and Shopify.

Experts also noted a “strong rally” for the TON coin following news of integration of the crypto wallet into Telegram.

According to the report, activity on L1 blockchains declined across all metrics, including development and transaction counts.

Meanwhile in Ethereum layer-2 networks there are “signs of rejuvenation” with the launch of Base, boosting transactional activity. At the same time, the average gas fee in the ecosystem fell to levels seen at the start of the year — $4.8.

The amount of ETH locked in staking accounts for 22% of the total circulating supply.

“The amount of locked Ethereum continued to increase in Q3 as holders look to earn yields from staking. We have also seen growing use of liquid staking protocols, which provide participants with opportunities to earn additional profits,” the study says.

DeFi — the DeFi arena is contracting. Total value locked (TVL) in such protocols fell 13.1% — to $38.5 billion.

Nevertheless there are positive shifts in the segment, such as the development of RWA, which contributed to higher yields in certain areas, Binance said.

The largest DeFi projects by volume were the liquid staking protocols ($20 billion). Followed by lending platforms ($14.2 billion) and decentralised exchanges ($11.6 billion).

Meanwhile, the TVL of Lido Finance accounts for more than a third of the entire DeFi sector — $14.7 billion.

Q3 was the worst of the year in terms of funds stolen in hacks. In this period, attackers stole around $308.2 million in cryptocurrencies. However, Binance’s data did not include assets returned by white-hat hackers.

The NFT market endured its worst quarter since late 2020 — transaction volume reached only $1.2 billion.

The floor price for tokens of well-known collections such as Azuki, BAYC, MAYC fell by more than 25% compared with the previous quarter. The September average sale price stood at $38.17, well below the peak of $791.84 in August 2021.

Despite lower volumes in dollar terms, the number of NFT transactions rose by 4.6% vs April–June.

In October, Glassnode analysts noted a contraction in liquidity in the crypto market amid declines toward cyclical lows in on-chain transfers, shifts in exchange balances and capital flows. Experts say there is a sense of apathy, with hodling remaining the dominant strategy.