A sharp drop in TVL and DApp use preceded Avalanche’s (AVAX) 16% correction
After an impressive 73% rally between July 13 and Aug. 13, Avalanche (AVAX) has faced a 16% rejection from the $30.30 resistance level. Some analysts will try to pin the correction as a "technical adjustment," but the network’s deposits and decentralized applications reflect worsening conditions.
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 take a look at the network’s use in terms of deposits and users.
The decentralized application (DApp) platform is still a top-15 contender with a $7.2 billion market capitalization. Meanwhile, Solana (SOL), another proof-of-work (PoW) layer-1 platform, holds a $14.2 billion market cap, which is nearly twice as large as Avalanche's.
Some analysts tend to give too much weight to the total value locked (TVL) metic and although this might hold relevance for the decentralized finance (DeFi) industry, it is seldom required for nonfungible token (NFT) minting, digital item marketplaces, crypto games, gambling and social applications.
Using the layer-2 solution Polygon (MATIC) as a proxy, it currently holds a $2.2 billion TVL while MATIC’s market cap stands at $7.2 billion; thus, a 3.3x MCap/TVL ratio. Curiously, the same ratio applies to Avalanche, which currently holds a similar $2.2 billion TVL and $7.2 billion capitalization.
Avalanche's primary DApp metric began to display weakness in late July after the TVL dropped below 110 million AVAX. In two months, the current 85.4 million is a sharp 40% cut and signals that investors have been withdrawing coins from the network's smart contract applications.
The chart above shows how Avalanche's smart contracts deposits peaked at
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