Coin Metrics: Digital Reading of Market Performance and Adoption Status after DeFi Carnival

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After bottoming out in October, DeFi began to recover.

Original title: “Coin Metrics 丨 After the carnival, what is the status quo of DeFi? 》
Written by: Nate Maddrey and Coin Metrics Team
Translation: Li Hanbo

Decentralized finance (DeFi) took over the crypto world in the summer. But after September, its popularity has declined, and has since retreated behind BTC and ETH.

In this week’s topic, we discussed the rapid rise of DeFi Token, as well as the market value and current status of DeFi.

This is the third increase in DeFi

Although it looks like it emerged overnight, DeFi has been around for many years. During 2018, as the price of Ethereum (ETH) reached historical highs, early projects such as MakerDAO (MKR) and 0x (ZRX) pushed the total market value of DeFi to more than $5 billion. But this summer, with the rapid entry of many new projects, the initial gains of DeFi dwarfed.

Source: Coin Metrics Network Data Charts

The recent rise of DeFi began with the launch of the COMP governance Token of the Compound protocol in June. The launch of COMP kicked off the rise of decentralized lending and became the initial driving force for the skyrocketing DeFi. Compound allows users to use crypto assets as collateral to borrow crypto assets such as ETH, DAI, and USDC. It also allows users to lend their crypto assets and earn income, which has become the cornerstone of DeFi investment. In addition to Compound, the Aave protocol has developed into one of the largest DeFi decentralized lending platforms. Aave initially launched LEND Token, and recently they transitioned it to AAVE Token.

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Following COMP, many other DeFi applications also launched governance tokens in the summer of 2020. Yearn.finance is an application that automatically invests users’ funds into the decentralized lending market with the highest yield. It launched the YFI governance Token in mid-July. YFI was launched through an incentive liquidity pool, which has become a popular way of DeFi Token. YFI reached a market value of more than $1 billion at the end of August.

The market value of DeFi reached its peak shortly after the launch of Uniswap’s UNI governance token on September 18. Uniswap is the largest decentralized exchange based on Ethereum and has always been the engine behind the DeFi mania. Uniswap allows anyone to issue a new Token and immediately start trading with a decentralized liquidity pool, which helps the new DeFi Token to be launched quickly and scale up. Uniswap’s trading volume has increased from approximately US$1 million per day in early June to nearly US$1 billion per day in early September.

UNI was launched to reward airdrops from previous Uniswap users and liquidity providers. Due to the sudden launch, UNI almost immediately pushed the market value of DeFi to a record high. But soon after, the bubble began to burst. People who received the UNI airdrop began to sell their tokens collectively, causing the price of UNI to drop from a high of close to $7 to a low of less than $2. In addition, a series of vulnerabilities and hackers have caused huge losses, which has kept the market value of this field declining.

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Coin Metrics: Digital Reading of Market Performance and Adoption Status after DeFi CarnivalSource: Coin Metrics Network Data Charts

But DeFi market value has begun to recover. After reaching a low point on November 4, the market value of DeFi returned to the level at the end of September after BTC and ETH surged. If BTC and ETH continue to rise, DeFi may become a big beneficiary.

Rebound in usage

Similar to market value, DeFi usage measured by daily active addresses also peaked in September. After the initial airdrop, there were more than 176,000 UNI active addresses on September 17, which is the largest number in DeFi history so far. However, since then, the daily active addresses of UNI dropped rapidly and stabilized at around 5K per day.

Coin Metrics: Digital Reading of Market Performance and Adoption Status after DeFi CarnivalSource: Coin Metrics Network Data Charts

By removing the UNI from the above figure, it can be seen that other DeFi Tokens are recovering. Excluding UNI, the total number of active addresses still peaked in early September, mainly due to the rise and fall of SushiSwap (SUSHI).

Coin Metrics: Digital Reading of Market Performance and Adoption Status after DeFi CarnivalSource: Coin Metrics Network Data Charts

Since mid-October, the use of COMP has been increasing. On November 11, the number of COMP active addresses reached 8,264, a record high.

Coin Metrics: Digital Reading of Market Performance and Adoption Status after DeFi CarnivalSource: Coin Metrics Network Data Charts

Since October, the activity of MakerDAO and MKR has also been increasing. MKR active addresses hit a record high of 2281 on October 4, and broke through 2K again on November 10. MakerDAO’s recent total locked-up value (TVL) exceeded US$2.3 billion, reaching a record high, breaking the US$2 billion mark in early November. The decentralized stablecoin DAI issued by MakerDAO also reached a milestone last week, with the supply reaching 1 billion for the first time.

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Coin Metrics: Digital Reading of Market Performance and Adoption Status after DeFi CarnivalSource: Coin Metrics Network Data Charts

After experiencing a decline for most of October, YFI’s active addresses finally started to rebound. On November 7, YFI had 2,996 active addresses, the fourth highest daily total since its launch. On November 10th, YFI’s active addresses also exceeded 2K.

Coin Metrics: Digital Reading of Market Performance and Adoption Status after DeFi CarnivalSource: Coin Metrics Network Data Charts

in conclusion

After bottoming out in October, DeFi seems to have begun to recover. Usage trends show that COMP and MKR activities have been increasing. Overall, with the development of DeFi, it will continue to grow. As new funds flow into BTC and ETH, new DeFi Tokens and applications may follow soon. If the recent trend continues, another wave of DeFi may come soon.

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