We’ve got a zombie problem in the crypto sector!
More and more zombie blockchain protocols are weighing on the crypto sector.
More and more zombie blockchain protocols are weighing on the crypto sector. How to spot them and what the current candidates are?
Zombie companies are mostly over-leveraged, underproductive, and rely heavily on external capital to cover operating costs. Especially in times of crisis or when financing costs rise, these companies quickly teeter on the edge. But we can’t apply the term only to companies—it can also apply to blockchain protocols.
Zombie cryptocurrencies: What sets them apart?
The ICO hype in 2017 and the crypto hype cycle in 2020 and 2021 swept a lot of money into blockchain protocols. The crucial question now: what happens to that money? Is it used to further develop the protocols, or do the founders profit nicely? Does the protocol also attract open-source developers outside the company or foundation who aren’t on the payroll?
Besides metrics like transaction counts or the total value locked in DeFi protocols, developer activity is the main signal for a cryptocurrency’s future potential. Since the vast majority of developers are spread across the leading smart contract protocols—especially Ethereum at around 25%—it's clear most cryptocurrencies have little activity. You can see this in GitHub contributions via commits, which show which protocols get a lot of work and which get little or none.
A smart contract protocol with few transactions and little developer interest is basically dead on arrival, taking token holders’ investment with it. Unlike a company, it would be apt to call such a cryptocurrency a zombie protocol—even if there’s still plenty of money tied up in the foundation or among holders.
Not a plan, but a lack of focus
Especially projects that have lost their original focus, that have already jumped the gun, and now aren’t sure what use cases to pursue, are at risk. Instead of sharpening their USP, they jump from trend to trend. This showed up with NFTs, where quickly many protocols from 2016-2018 arrived with uninspired and half-baked NFT applications.
With enough money in the foundation and internal developers, many years can pass without a truly mature product, while every employee still gets paid at month’s end. As an investor, you’re left hoping a big breakthrough or a pivot will pay off at some point.
Developer activity: the winners and losers
To gauge development activity, reports like Outlier Ventures or Electric Capital can be useful. The protocols with the most submitted commits include Ethereum, Bitcoin, Polkadot, Cosmos, and Solana. Solana and Avalanche have shown particularly strong growth in commits over the last few months. Active developer counts often correlate with commit counts, with Cardano standing out in particular.
On the other hand, the following coins have been trending down, i.e., with significantly falling commit numbers: Bitcoin Cash, Axie Infinity, THORChain, BitTorrent, and Dogecoin. Additionally, well-known protocols Tron and EOS stand out for low active developer counts. Bitcoin Cash, however, tops the list for the fewest active developers.
