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4th Quarter Market Outlook: The CoinDesk Smart Contract Platform Index (SMT)

The CoinDesk Smart Contract Platform Index (SMT) is designed to measure the market capitalization weighted performance of smart contract platform protocols included in the Digital Asset Classification Standard (DACS). Inclusion of a digital asset in SMT is subject to minimum trading and exchange eligibility requirements. SMT reflects the DACS as of the prior month, so the Smart Contract Platform sector includes smart contracts that are computerized blockchain protocols that execute terms of a contract.

Smart Contracts represent computer code that ensures when the terms of the contract are met by both parties. It executes automatically, allowing for peer-to-peer trustless transactions. Smart contract platforms are designed for the building of decentralized applications, layer 2 scaling systems, decentralized autonomous organizations (DAO) and custom protocols. Each platform has a unique open-source user and miner incentive structure and utilizes a BFT consensus mechanism. Each platform utilizes a native token for the payment towards building on the platform, providing liquidity and allowing interoperability between the native token and newly created tokens built on the platform.

As of Dec 15, 2022, SMT lost 13.1% for the quarter to date (QTD), and included 41 digital assets assigned to two single industry, industry groups, Multi-Chain/Parachain and Single Chain according to the CoinDesk Digital Asset Classification Standard (DACS)[1].

  • 36 constituents remained in SMT the entire fourth quarter, with 33, or 91.7%, losing and three, or 8.3%, gaining.

  • Best performer: Optimism gained 17% and is part of the DACS Single Chain Industry and Industry Group. It surged over 100% in the days prior to the FTX collapse but took a big subsequent hit afterwards.

  • Worst performer: Solana lost 58% and is also part of the DACS Single Chain Industry and Industry Group. However, both Solana and Optimism are relatively small, with a combined total weight just over 2.5% of SMT at the end of the period.

  • Biggest asset: Ether, comprising 73% of the sector. It also covers 25% of the CMI, making it the second-largest asset by market value behind bitcoin. While ETH lost 5.5% QTD, it ranked as the fourth-best performing asset in the sector. Many viewed ether, the token of Ethereum, the largest smart contract platform that serves as the basis for most decentralized finance (DeFi) applications as valuable despite the greater crypto collapse. Given the volatility in the space, it is remarkable how the price of ETH remains relatively unchanged three months after the Merge.

Read more: CoinDesk Market Outlook: 4Q Crypto Gloom Spills Into 2023

Commentary and outlook

The smart contract platform sector had a mixed quarter:

The Ethereum scaling solution Optimism was a big winner, as was Polygon’s MATIC which gained 13% after multiple non-fungible token (NFT) partnership announcements with traditional companies such as Starbucks and Instagram. The FTM token from Fantom, one of the “Ethereum killer” smart-contract platforms, was up 2%.

On the losing side, Solana got crushed partly due to its close ties to FTX founder Sam Bankman-Fried Near Protocol (NEAR) was down 55%, and Waves (WAVES) lost 54%.

While Solana has been grappling with losses from the FTX storm since November, core projects are migrating into the Ethereum sphere. For instance, Solana-centric crypto wallet Phantom is expanding its support to Ethereum and Polygon – which plays into “a positive narrative” of layer 2 scaling, according to Nick Hotz, vice president of research at the digital-asset management firm Arca.

"It has definitely been a story of the Ethereum ecosystem kind of taking market share over the last couple of months,” Hotz told CoinDesk in an interview.

Looking ahead to 2023, the market still needs to "come to grips" with the fact that staked ether withdrawals will be enabled around March, Hotz said.

"I think a lot of people initially are going to read that as bearish just because people are spooked and that leads to potential selling pressure," he said. "I certainly would be more interested in staking if I had very strong clarity around when I could get access to that liquidity than if I am uncertain.”

[1] As of Dec. 15, 2022, the CoinDesk Digital Asset Classification Standard (DACS) was updated, and there is a structure modification to the industry groups and industries in the Smart Contract Platform sector. However, the CoinDesk Market Index (CMI) Family will reflect the changes as of the January reconstitution in accordance with its standard methodology.

More from this report

(Fourth quarter performance as of Dec 15, 2022.)

The CoinDesk Currency Index, Excluding Stablecoins (CCX)

The CoinDesk DeFi Index (DCF)

The CoinDesk Culture & Entertainment Index (CNE)

The CoinDesk Computing Index (CPU)

The CoinDesk Digitization Index (DTZ)