As the price of Bitcoin (BTC) continues to reach new highs in 2020, everyone’s eyes are focused on this digital asset. At the same time, the publicity surrounding decentralized financial projects continued to weaken, especially in the context of the collapse of token prices. The data shows that the trading volume of decentralized exchanges (DEX) is declining rapidly, which further indicates the decline of the DeFi industry.
The recent hacking of Harvest Finance made the entire DEX transaction volume surge in one day, especially Uniswap and Curve. According to media reports and Harvest investors, hackers used flash loans to depress the price of Harvest Finance’s Tether (USDT) and USD Coin (USDC) tokens through Uniswap and Curve with millions of dollars worth of cryptocurrencies.
Subsequently, the attacker purchased these tokens at a discounted price, used them to repay the initial flash loan, and made considerable profits in the process. By performing this operation multiple times, Uniswap’s trading volume has been exaggerated.
Although this hacker attack pushed DEX’s daily trading volume to $5 billion, this anomaly only lasted for a short time, and since then, trading volume seems to have been declining steadily.
Daily DEX trading volume Source: Dune Analytics
In the second half of October, DEX trading volume was the worst week since August. Weekly trading volume dropped from US$8 billion in the first week of September to approximately US$3 billion from October 19th to 25th. Uniswap still leads with a market share of 56% of all DEX trading volumes.
DEX trading volume per week Source: Dune Analytics
Although there has been a sharp correction in DeFi assets and a decrease in transaction volume, the total value locked in is still close to a record high. Data from DeFi Pulse shows that the total value currently locked is $11.2 billion, a slight drop from the historical high of $12.46 billion on October 25.
Total locked value in DeFi (USD) Source: DeFi Pulse
With the return of the Bitcoin bull market, the DeFi season is over
As the propaganda of decentralized finance fades, Bitcoin has once again become the focus of attention. Since the beginning of October, the price of Bitcoin has soared by about 24%, and corporate giants such as Square and Paypal have made many large bets, and Paypal is expected to help the number of Bitcoin users triple in the near future.
The decrease in DeFi transaction volume shows that traders have lost interest in profitable exits to a certain extent and are returning to Bitcoin. The rising trading volume of Bitcoin derivatives further proves this.
Exchange BTC Futures Trading Volume Source: Digital Asset Data
Although it is difficult to see the impact of institutional investors on Bitcoin’s price trend, recent purchases and the increase in options and futures trading volumes do show that bulls are working.
After PayPal announced that it would add Bitcoin to its platform, the price of Bitcoin rose by nearly 10%. On October 23, Grayscale announced that it had increased its holdings of $300 million in bitcoin in just one day. Currently, Grayscale has $7.6 billion in assets under management.
Can DEX survive?
As investors shift their focus to Bitcoin, some people want to know what the future holds for decentralized assets. The total value locked in DeFi is still high, but this situation may soon change due to the reduction in exchange trading volume.
Since most of the rewards of the DeFi protocol are related to transaction volume, the reduction in transaction volume will lead to a decline in the yield of liquidity providers and further reduce investor interest in DeFi.
Ilya Abugov, principal analyst at DappRadar, said:
“DeFi has dropped a bit since the end of the summer, but I think it is natural. The cyclical hype exceeds the actual growth, so there is a period of cooling off. But, fundamentally, there is no impact on DeFi. And the growth of DEX. New projects are under development.”
Despite some practical challenges, many DeFi projects still receive strong interest from investors. On October 28th, Andre Cronje, the founder of Year.finance, launched Keep3r, a decentralized work platform with technical positions provided by the KPR token market.
Although there was no announcement, investors still seized the opportunity to participate in the project. Traders pushed the price of KPR from $24 to $162.58, an increase of 570%. The transaction volume on the first day of the project also exceeded US$255 million.
The publicity of Keep3r shows that as long as there are suitable projects, people’s interest still exists. Abugov said that new projects and developments in DeFi may help stimulate interest in the field.
“Now, in addition to wBTC, Ethereum DeFi will introduce tokens linked to Zcash and Dash. DEX facilitates asset exchange, so it should benefit from the overall growth of DeFi. We may see the game industry more closely related to DEFI. Closely linked together. This activity should also affect DEX.”
