Layer by Layer Issue 18: Avalanche, Cosmos, Osmosis, Terra, Polkadot

Crypto markets were in turmoil this week as prices of major tokens fell across the board, seemingly in heightened anticipation of developing macro conditions that included a statement by Federal Reserve Chairman Jerome Powell on January 26th regarding planned interest rate increases in 2022. As of this writing, the total market capitalization of cryptocurrencies is down about 43% from its peak of $3.08 trillion on November 8th, 2021, more than two months ago. Between January 20th and 22nd, the price of Bitcoin fell by about 14%, in one of the sharpest drops in recent weeks. The last drop of this magnitude occurred between December 2nd and 4th, during which Bitcoin’s price fell by about 13%.

These price drops typically incur a greater than normal strain on the most heavily trafficked blockchains today as trading activity picks up and on-chain liquidations trigger further volume and price volatility. Typically, the added urgency of making transactions during large market movements means that there is a greater demand for block space as users have a greater desire to quickly confirm their transactions. In blockchains with a fee market like Ethereum, this spike in demand translates to elevated gas prices as users bid progressively higher to have their transactions included in the next block.