When it comes to putting a number on this year’s crypto swoon, the most frequently cited is the $2 trillion, digital-asset market value that evaporated in a downdraft. But here is a figure that shows the breadth of the crypto bear market: 12,100. According to data provider Nomics, the number of crypto tokens that have effectively stopped this year is not technically dead, but not entirely alive, like zombies.
Most blockchain projects are built around bespoke digital coins, which often act as user rewards and compensate developers for their work, incentivizing them to stay involved. During last year’s price hike, thousands of crypto startups issued new tokens to support these projects, and the bullish sentiment meant that there was enough demand in the market to absorb most of them and still hold on to prices. There was an increase in Everything changed this year, as macroeconomic conditions turned investors away from riskier assets and the coin’s price plummeted. The explosion of the Terra blockchain, as well as the collapse of crypto firms such as hedge funds Three Arrows Capital and Celsius Network, caused another sell-off and a chilling venture capital fund. The biggest coins like bitcoin and ether faced major downsides before finally finding support. But for many coins to support riskier and sketchier efforts, the recession has dealt a knockout blow of sorts.
Nomix compiled an analysis of coin activity for Bloomberg and found that over 12,100 tokens have become ‘zombies’ this year, defined as tokens that haven’t traded for a month. This is more than double in all previous years combined, it found. “During the 2021 bull run, there was a lot of money, focus and liquidity for new and existing projects,” said Jacob Joseph, an analyst at CryptoKitties. “However, in the ongoing bear market, even good projects with utility will struggle to sustain their operations as they lose access to capital and funding.”
This is in contrast to the bust-up in initial coin offerings during the previous bear market starting in 2018. Then, startups issued coins to raise funds—often illegally, it turned out. Most ICOs did not have working prototypes, very few users; When they went down, only the investors got burned. And the market was small: in 2018, a total of 136 coins turned into zombies, while 766 coins earned that designation in 2019, well below this year’s level.
According to Nick Gauthier, co-founder of Nomix, this time it is difficult to know the scope or severity of the affected projects, although one part is likely memes, short-term leveraged assets or small personal projects done for fun. Many, such as a project called BoomSpace, which is said to be working on blockchain gaming, no longer have a live website, but only a Twitter account that hasn’t been updated in months. Allonmoon, a token for the Moon exploration game, has a warning on tracker CoinMarketCap saying, “We have received several reports that some holders cannot sell their tokens. Please be careful and do your due diligence!”
Even in active coins, trading can be slim. Of Nomix’s more than 64,400 assets, only 13,800 had trading volume in the most recent 24-hour period last week. And there are a myriad of coins that aren’t quite zombies yet, but are nearly so, and are trading at fractions of a cent—like the Terra Classic—perhaps giving even those with a taste for adventure a profit opportunity.
While many projects held their own coins as a reserve during the boom, the current environment suggests that startups take a more cautious approach, perhaps using more widely traded and valuable coins such as ether or as a backup. Keep cash as well. “I think crypto projects will need to make sure they are as prepared for the lows as they want to ride the highs,” Gauthier said. Still, with no expectation of the market environment, the ranks of zombies will likely rise, said John Griffin, a finance professor at the University of Texas at Austin.
Unlike other industries, it is not as noticeable in crypto when coins turn into zombies and projects are effectively dormant. Crypto investor Aaron Brown said, “There is no storefront to board up, no inventory to sell, no employees to claim unemployment. Just people lose interest in the token and move on to other things.” go.”
This dynamic is one reason why new coins keep being born as others are discarded, and why it is possible that the next bull market will bring even more new coins – many of which can become zombies over time. “Since the cost of a crypto startup is close to zero, and anyone in the world can try without discrimination or regulation, many people will keep trying,” said Aaron Brown. “Where do you think the dead coins are piling up?” “It’s not that cyberspace is a warehouse with limited capacity,” he said.
Olga Kharif is a crypto reporter at Bloomberg
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