Cardano’s Core Network Faces Liquidity Drain Amid Midnight Token Frenzy

The Cardano ecosystem is experiencing a significant internal shift. The recent debut of the Midnight network's token has triggered a stark divergence: record-breaking activity on the new privacy-focused sidechain coincides with a severe drop in usage and value on the main Cardano blockchain. This migration of capital is occurring at a precarious moment for ADA, which is attempting to hold crucial price support levels.

The launch of the NIGHT token, the governance asset for the Midnight privacy sidechain that went live on December 8, has ignited a speculative firestorm. In a 24-hour period, NIGHT recorded a trading volume of approximately $6.3 billion—at times surpassing the volume of established giants like XRP and Solana. Given its market capitalization of just $1.7 billion, this implies a daily turnover rate that quadruples its total market value, signaling intense speculative trading and rapid capital rotation.

This frenzy, however, appears to be drawing resources directly from the primary Cardano network. Market observers identify a clear "liquidity rotation," where long-term holders and decentralized finance (DeFi) users are pulling capital to pursue opportunities on the new, high-profile sidechain.

Cardano Mainnet Metrics Show Steep Decline

The impact on the Cardano mainnet is severe and quantifiable. The number of daily active addresses on the blockchain has collapsed from around 93,000 during the period of the U.S. elections to fewer than 25,000 currently—a decline exceeding 73%. Monthly active addresses tell a similar story, plummeting from 750,964 in October to just 271,853 in November.

Should investors sell immediately? Or is it worth buying Cardano?

The DeFi sector on Cardano is feeling particular strain. The Total Value Locked (TVL) across ADA-based protocols has fallen by roughly 36% over 30 days, now standing at only $171 to $186 million, marking its lowest point this year. This drain of liquidity and user activity raises fundamental questions about network health.

Structural Upgrades Confront Immediate Challenges

Amid these market movements, the Cardano Foundation continues to develop long-term technical improvements. The "Ouroboros Leios" upgrade, slated for 2026, aims to substantially increase transaction throughput. Furthermore, key governance measures intended to stabilize the ecosystem's economy were passed in December.

Despite these foundational efforts, their positive effects have yet to materialize in the current metrics. The central challenge facing Cardano into 2026 is whether its mainnet can capture and retain value from successful partner chains like Midnight. The alternative is a scenario where ADA primarily serves as a launchpad for projects that subsequently draw value away, leading to cannibalization rather than synergistic growth. For a trend reversal, the mainnet must demonstrate its ability to benefit from the success of its offshoots.