A sharp drop in TVL and DApp usage preceded Avalanche’s 16% correction (AVAX)

A sharp drop in TVL and DApp usage preceded Avalanche’s 16% correction (AVAX)

A sharp drop in TVL and DApp usage preceded Avalanche’s 16% correction (AVAX)

After an impressive 73% rally between July 13 and August 13, Avalanche (AVAX) faced a 16% rejection from the $30.30 resistance level. Some analysts will try to call the correction a “technical adjustment,” but network repositories and decentralized apps reflect worsening conditions.

Avalanche Index (AVAX), USD. Source: Trading View

To date, Avalanche remains 83% below its November 2021 all-time high at $148. More data than technical analysis can be analyzed to explain the 16% price drop, so let’s look at network usage in terms of deposits and users.

The decentralized application platform (DApp) is still one of the top 15 competitors with a market capitalization of $7.2 billion. Meanwhile, Solana (SOL), another layer-1 proof-of-work (PoW) platform, has a market capitalization of $14.2 billion, nearly twice that of Avalanche.

Avalanche’s TVL drops 40% in two months

Some analysts tend to place too much weight on Total Value Locked (TVL) and while this may be relevant for the Decentralized Finance (DeFi) industry, it is rarely needed for non-fungible token (NFT) minting. , digital item marketplaces, crypto games. , gambling and social applications.

Using Polygon (MATIC) layer 2 solution as a proxy, it currently holds a TVL of $2.2 billion while MATIC’s market capitalization stands at $7.2 billion; thus, an MCap/TVL ratio of 3.3x. Curiously, the same ratio applies to Avalanche, which currently holds a similar TVL of $2.2 billion and market capitalization of $7.2 billion.

Total locked avalanche value, AVAX. Source: DéfiLlama

Avalanche’s main DApp metric began to show weakness in late July after TVL fell below 110 million AVAX. In two months, the current 85.4 million represents a steep reduction of 40% and signals that investors have pulled coins from smart contract applications on the network.

The chart above shows how Avalanche’s smart contract deposits peaked at 175 million AVAX on June 13, followed by a steady decline. In dollars, the current TVL of $2.2 billion is the lowest number since September 2021. This number represents 8.2% of the total TVL (excluding Ethereum), according to data from DefiLlama.

Initially, the data looks disappointing, especially considering that Solana’s network TVL has decreased by 27% over the same period in terms of SOL, and Ethereum’s TVL has decreased by 33% in ETH deposits.

DApp usage also underperformed competing channels

To confirm whether the TVL drop in Avalanche is troublesome, it’s worth analyzing a few DApp usage metrics.

Avalanche DApps 30-day on-chain data. Source: DappRadar

As shown by DappRadar, on August 18, the number of Avalanche network addresses interacting with decentralized applications decreased by 5% compared to the previous month. In comparison, Ethereum saw a 4% increase and Polygon users gained 10%.

Avalanche’s TVL was the hardest hit compared to similar smart contract platforms, and the number of active addresses interacting with most DApps exceeded 20,000 in only one case. This data should be a warning signal for investors betting on this blockchain auto-execution solution.

Polygon, on the other hand, accumulated 12 decentralized applications with 20,000 or more active addresses during the same period. The results above suggest that Avalanche is losing ground to competing chains, adding another reason for the recent 16% selloff.

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