Cardano is having an Ethereum moment. That is the period when the first applications are deployed on the platform and people start using them. The number of users who bring liquidity with them is growing. Activity is also increasing and this is attracting more new users. The resulting effect is a growing TVL. On Cardano, TVL began to rise significantly in February 2023, back in the bear market. This is very encouraging compared to other SC platforms as TVL is stagnant or declining on them.
Cardano is the only one of the leading SC platforms that haven't gone through a bull market, which is why TVL makes a new ATH every week. Analysts underestimated the power of the Cardano community and the ability of developers to learn the eUTXO accounting model and create secure apps on the Plutus platform.
What did the analysts get wrong?
Many people, including analysts, argued that DeFi on Cardano was late in coming and would not be able to compete with a wide range of other options. The first apps on Cardano only started appearing in early 2022. Their number has slowly grown and there are now several dozen of them.
Analytics were wrong. With every new app launched on Cardano, more and more users come. The number of transactions, volume, and TVL is growing. Especially pleasing is the fact that Cardano is the only SC platform (from the top 20) where TVL is growing significantly.
Cardano's TVL has been doing a new ATH almost every week since Feb 2023. Currently, 544M ADA (146M USD) is locked in. On Ethereum, Solana, Avalanche, BSC, and Polygon we see declining TVL. On Tron, we see a stagnant trend. On Tezos, TVL is rising, but not as significantly as Cardano.
29M ETH were locked on Ethereum at the ATH in July 2021. Currently, it is only 14M ETH, a 50% drop. Besides other things, this may be due to the ability to stake ETH. People have started using Liquid Staking Tokens (LSDs) in the Ethereum ecosystem.
In the case of Solana, the highest TVL was in June 2022 when 68M SOL coins were locked. Now it is only 16M SOL, a drop of about 75%. For the Avalanche project, we can observe a roughly 65% decrease in locked AVAX coins. It is a very similar story in the case of BSC and Polygon.
In the case of Cardano, we can see growth from 200M ADA to 540M ADA, which is roughly 65% growth just for the period from February 2023 to the present.
During the last bull market, all of the projects mentioned except Cardano had developed (or were developing) the DeFi ecosystem and managed to make ATH. User activity usually peaks around the peak of the bull market (sometimes approximately even a year after) and then starts to decline. As we said, DeFi on Cardano didn't start developing until 2022, so it didn't have time to create any ATH.
It is all the more surprising that TVL started growing in a bear market, making Cardano an exception among SC platforms.
It is important to mention that we got the data from the Defillama portal. Defillama only includes 14 applications from the Cardano ecosystem in the data. It is possible that the data is incomplete for other SC platforms as well.
From our perspective, the analysts underestimated the Cardano community and the desire of members to use DeFi on Cardano. Further, they failed to realize that Cardano is not just an EVM clone like many SC platforms, but that it is fundamentally a new platform built on the eUTXO accounting model. This seemed to be a disadvantage to many, as they felt that if applications could not be quickly ported from Ethereum to Cardano, no one would be willing to develop on Cardano. Additionally, there was doubt as to whether developers would be willing to deal with Plutus/Haskell besides the need to learn the eUTXO model and other things.
A large number of alternative programming languages have started to appear, so knowing Haskell is not a prerequisite for developing applications on Cardano. It's only a matter of time before applications built using these new programming languages start appearing. Many developers will choose these new programming languages rather than Plutus. Plutus will continue to be available and can serve, for example, banking institutions that need to build super secure and reliable applications.
So far, it appears that it is possible to build secure applications on Cardano. The growth of TVL is starting to be tempting for hackers who are certainly exploring how to hack the biggest apps. So far, no one has succeeded and I dare say this is overlooked by many analysts as well. If time proves that DeFi on Cardano is at least one order of magnitude more secure than on other platforms, it will play a significant role in the long run.
Of course, it would be advantageous to use the most used platform in the blockchain industry, but if there is a risk that it will be hacked, or that the team will not be able to increase the scalability of the first layer, it may be preferable to use Cardano which will allow the creation of more secure applications. This topic would be for another article but try to think about it yourself in the context of stablecoins, tokenization, and CBDCs.
We need more time
The Cardano ecosystem needs time to grow. From our perspective, about a year or two. That's when new programming languages will be available, including documentation, tools, and open-source projects that other teams can take inspiration from.
Time is also needed to integrate Hydra and deliver other important upgrades. We are still waiting for Atala PRISM, sidechain Midnight, and other important projects.
Some teams have been building new applications for over a year that will take full advantage of eUTXO's potential. I dare to say that the best is yet to come in this area. We'll see when these projects are up and running.
Cardano can handle a relatively large number of transactions with small block sizes. It is possible that if even more people came into the ecosystem, the block size would need to be increased again. The Ouroboros Leios PoS will take a lot of time to be implemented and will very likely not be seen at the peak of the next bull market.
I sometimes come across the opinion that Cardano has low TVL compared to other projects. This is true and is one of the reasons why it is growing. From our point of view, the most important thing is the number of users who use the platform. The second important metric is daily volume. TVL is not that important as one entity (team, VC fund) can easily inflate TVL. Inflating TVL in a bear market is not easy as coins lose a significant portion of their market value. VC funds do not want to take this risk and it can also be economically disadvantageous for the team. If you're surprised that TVL is falling in bear markets, believe that one reason is the fear of losing wealth. The same is true for ADA coins, so every locked coin in the Cardano ecosystem is proof that people trust the platform.