Summary Cardano's network metrics show slow growth in wallet holders and a decline in active addresses, indicating underwhelming adoption. Cardano's Total Value Locked has increased, driven by ADA price growth, but stablecoin growth is disappointing. The upcoming Plutus V3 upgrade could improve application development and potentially attract smart contract migration to Cardano. It has been 8 months since my initial coverage of smart contract blockchain Cardano USD ( ADA-USD ). My previous article focused on the SEC's designation of ADA as an unregistered security, the DJED stablecoin, and some standard network metrics that I usually pay attention to pertaining to public blockchain networks. Data by YCharts While the price of ADA has more than doubled since that initial coverage note last year, ADA has underperformed some other "ETH Killer" smart contract chains that it competes with. In this update, we'll again look at some of those network metrics that I mentioned previously and highlight an upcoming catalyst that may have the potential to drive activity on the network. Network Metrics One of the most straightforward metrics that we can use to measure adoption of crypto is wallet holders. For Cardano, that figure comes in at 4.46 million ADA holders as of February 12th. Growth here hasn't been great, given Cardano had 4.44 million ADA holders in April 2023. Perhaps more concerning than the lack of growth is the decline in active addresses over time: ADA Active Address Ratio (IntoTheBlock) We can see in the chart above that the active address ratio is currently near multi-year lows at under 1%. For a network that offers lower-cost transactions compared to more established chains like Ethereum USD ( ETH-USD ) and Bitcoin USD ( BTC-USD ), this is a really underwhelming ratio. And we can see it in the Daily Active User trends as well: DAUs vs Price (Santiment) When I last covered ADA in June 2023, the 30-day average for DAUs was over 1 million. Today, that figure is off by about 30%. There are some positives, though. Both Cardano's USD-denominated and ADA-denominated Total Value Locked have increased since my last article: Cardano Network Mid-June 2023 Mid-Feb 2024 Change ADA TVL (millions) 510.5 705.2 38.1% USD TVL (millions) $139.59 $388.44 178.3% USD Stables (millions) $12.58 $18.68 48.5% MC/TVL 69.41 52.02 -25.1% Protocols 20 33 65.0% TVL Rank 19 14 +5 Source: Defi Llama Most of the TVL growth has come from ADA price growth, but there are additional positive signs. First, protocols (or dApps) on the chain have grown by 65%. Cardano's TVL rank has also improved by 5 positions, and the MC/TVL valuation ratio has decreased by 25%. The Stablecoin footprint, while up, is a bit disappointing at just $18.7 million. DJED Stablecoin Growth As noted in my last Cardano article, DJED is a decentralized stablecoin project that is operating on the Cardano blockchain. In my personal opinion, this is one of the more interesting projects in crypto, as it's an overcollateralized fully crypto-backed stablecoin. DJED Growth (Defi Llama) In the chart above, we can see that even though TVL has grown in this project, the cumulative USD inflow actually started declining in December. This is not a positive sign for Cardano's stablecoin market, and there has been support in the Cardano community to have Circle bring USCoin USD ( USDC-USD ) onto the blockchain. Plutus V3 Catalyst? "Plutus V3" is currently available on Cardano's testnet. If Plutus V3 finds its way to Cardano's mainnet, it would theoretically be a very important upgrade, as it would bring the blockchain in line with industry standards. From an Input Output blog detailing the upgrade: Among its benefits, Plutus V3 offers greater efficiency, optionality, and ease of use to the Cardano builder community - all key to nurturing developer adoption. Prioritizing aspects such as performance, throughput, smart contract size, and platform capabilities ensures that Cardano developers can use the latest standards. The details are far too technical for the scope of this article, and I'd encourage anyone curious to follow the hyperlink in the previous paragraph. But the main takeaway for investors is Plutus V3 would enable better application development in the Cardano ecosystem, and it could even drive smart contract migration from other blockchains to Cardano. All of this is highly speculative, but it appears to be an important step in Cardano's ongoing development and could possibly result in more stablecoin growth on the chain. Investment Demand? With the approvals of spot Bitcoin ETFs earlier this year, the investment demand for BTC has been robust in 2024 to say the least. CoinShares does a good job of updating this data on a regular basis and these figures include crypto-themed investment products throughout the world rather than just US-based funds like Grayscale. In the table below, I'm showing the full-year net flow for a handful of cryptocurrencies going back to 2021 as well as the year to date net flow through February 9th of 2024: Asset Flows 2024 YTD 2023 2022 2021 Bitcoin $2,599 $1,935 $388 $7,245 Ethereum $13 $78 -$143 $2,012 Solana USD ( SOL-USD ) $5 $167 $121 $231 Binance Coin USD ( BNB-USD ) $0 -$1 -$24 $26 Cardano $11 $14 $15 $116 Source: CoinShares & Bloomberg, figures in millions as of 2/9/24 The figure that clearly jumps off the page is the inflow for Bitcoin, which has already eclipsed the combined inflow from both 2022 and 2023. In a recent SA article, I made the case that the lack of Ethereum investment demand with a quickly approaching May deadline for US-based spot ETFs could be an indication that investors aren't banking on spot ETH approvals in the first half of the year. The other possible signal from this table is the $11 million investment demand into Cardano so far in 2024. This figure is close to the total inflow for all of 2023 and 2022. I actually went into the CoinShares archives and found that only $4 million had been put into Cardano by June 2023. So while still very small in the grand scheme of things, there is a noticeable increase in the pace of allocation for ADA that we're not necessarily seeing in every altcoin. Furthermore, at $11 million in YTD net flow, Cardano is barely behind Ethereum so far this year and ETH has spot ETF applications on the table. Risks Cryptocurrencies and the blockchain networks they live on carry an enormous amount of risks. There is regulatory risk. There is both network adoption and network health risk. Then there is the asset utility and appreciation risk. This is not an asset class that I'd say is right for everybody and even for the younger generations who may be able to afford to take some chances with their investments, allocation sizes shouldn't get too out of hand. I've been a believer in digital asset diversification. Each investor should be mindful of their own individual risk tolerance and understand that most digital assets have a high likelihood of negative total returns. Investor Takeaways Cardano is not an ecosystem that I have any personal experience with, so I can't speak to the UE of the network. But I do have a small amount of ADA exposure through the Grayscale Digital Large Cap Fund LLC ( OTCQX:GDLC ) which I have been buying more of lately as the NAV rate is once again at a very large 41% discount. That fund has a 1.4% allocation to ADA. However, my ADA exposure is not what I would consider to be significant. Finally, crypto has been rallying dramatically in recent months, and we're now just two months away from the Bitcoin halving event. I still suspect we will get a significant pullback in the crypto market either in the lead-up to that event or soon after it passes. Should we get a broad pullback, I would entertain taking a more direct ADA position if network growth warrants the move. So far, I'm not seeing that growth yet.
