Following an impressive 73% rally between Jul 13 and Aug 13, Avalanche (AVAX) has faced a 16% pullback from the $30.30 resistance level. Some analysts will try to chalk the correction up to a “technical adjustment,” but network repositories and decentralized applications reflect worsening conditions.
As of today, Avalanche is still 83% down from its November 2021 all-time high of $148. More data than technical analysis can be used to explain the 16% price drop, so let’s take a look. Look at network usage in terms of deposits and users.
The decentralized application platform (DApp) remains one of the top 15 competitors with a market capitalization of $7.2 billion. For its part, Solana (SOL), another layer 1 proof-of-stake (PoS) platform, has a market cap of $14.2 billion, which is almost double that of Avalanche.
Avalanche TVL dropped 40% in 2 months
Some analysts tend to place too much importance on the total value locked (TVL) metric, and while it can certainly be relevant to the decentralized finance (DeFi) sector, it is rarely needed for non-fungible token (NFT) minting. the marketplaces for digital goods, games, casinos, and social media applications.
Using the layer 2 solution, Polygon (MATIC), as a proxy, currently has a TVL of $2.2B, while MATIC’s market cap is $7.2B, so the cap/TVL ratio is 3.3x . Interestingly, the same relationship applies to Avalanche, which currently has a similar TVL of $2.2 billion and a capitalization of $7.2 billion.
The main metric for Avalanche DApps began to show weakness in late July, after the TVL fell below 110 million AVAX. In two months, the current 85.4 million marks a hefty 40% cut and signals that investors have been withdrawing their coins from the network’s smart contract applications.
The chart above shows how Avalanche smart contract deposits peaked at 175 million AVAX on June 13, followed by a steady decline. In dollar terms, the current TVL of $2.2 billion is the lowest figure since September 2021. This figure represents 8.2% of the aggregate TVL (excluding Ethereum), according to data from DefiLlama.
Initially, the data looks disappointing, especially considering that Solana’s network TVL fell 27% in the same period in SOL terms, and Ethereum’s TVL fell 33% in ETH deposits.
DApp usage has also been lower than competitor networks
To confirm if the TVL drop in Avalanche is problematic, some DApp usage metrics need to be analyzed.
As DappRadar shows, on August 18, the number of Avalanche network addresses interacting with decentralized applications decreased by 5% from the previous month. By comparison, Ethereum posted a 4% gain and Polygon users gained 10%.
Avalanche’s TVL has been hit the hardest compared to other similar smart contract platforms and the number of active addresses interacting with most DApps only exceeded 20,000 in one case. This data should be a red flag for investors betting on this automated blockchain execution solution.
Polygon, on the other hand, amassed 12 decentralized apps with 20,000 or more active addresses in the same time frame. The above results suggest that Avalanche is losing ground to competing chains and this adds yet another reason for the recent 16% drop.
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