cryptoknowmics.com
We see the launch of new DeFi protocols daily, with new tokenomics and new use cases. After layer 1 blockchains, DeFi protocols are the most talked-about category in the web3 community. DeFi started the 2020-2021 bull run, while most of the blue-chip DeFi tokens have been downtrend since May 2021. DeFi Protocols usage has not slowed down, and users are continuously increasing on these protocols. This article covers the analysis of the DeFi space and its major protocols.
DeFi Pulse Index Price Performance
Defi Pulse Index (DPI)is a capitalization-weighted index that tracks the performance of decentralized financial assets across the market. The underlying tokens whose performance DeFi Pulse Index tracks are Uniswap, Maker, Aave, Loopring, Synthetic, Yearn, Sushi, Compound, REN, Rari Capital, KNC, Balancer, Badger, Farm. The price action of DPI token can be used as a metric to evaluate the market price performance of DeFi tokens. Currently, DPI token has made a higher high on a daily and weekly level, showing that DeFi tokens have caught investors' attraction. A significant driver of the DeFi rally is Aave. Since the launch of Aave V3 on March 16, AAVE token price has increased by more than 90 percent. While many DeFi token's prices rose last week, these tokens are still down more than 60 % from their all-time high price.
DeFi Users Over Time Going Up Only
At the time of the DeFi summer of 2020, total DeFi users were around 250 K, and now there are about 4.5 million users. Users are continuously increasing irrespective of the price movement of the crypto market.
Uniswap Dominance in DEX Category
Uniswap is the most traded DEX by volume in DeFi. Uniswap has a 79.9% market share among DEXes on Ethereum. After Uniswap's V3 launch, more liquidity providers have moved to Uniswap to provide liquidity to earn trading fees in exchange. Improved capital efficiency that allows for low-slippage trade execution is the reason behind the increased volume of assets being traded on Uniswap.
Total Value Locked in DeFi is Increasing
Total Value Locked on DeFi Dapps is currently worth 235 billion dollars. The majority of the TVL is on Dapps running on Ethereum, Ethereum Dapps TVL market share is 54%. Despite extensive market corrections of cryptocurrencies in the first quarter of 2021, TVL has not dropped much. Current TVL is only 21 billion dollars short from its all-time high value of 256 billion dollars. The curve is the leading Dapp in terms of TVL and has 20.81 billion dollars of TVL locked on its platform, which supports the trading of stablecoins with low slippage.
Massive Increase of TVL on Lido
The curve will not be the market leader in terms of TVL anymore. After an impressive 65% increase in TVL in the last month on Lido, it seems Lido will soon be the number one Dapp in terms of TVL. Ethereum is the most deposited asset on Lido. The recent surge in the past month in TVL has also come from Ethereum being deposited in large quantities. The rise of Ethereum deposits on Lido is due to the upcoming Ethereum merge. According to Into the Block, staking rewards on staked Ethereum will be around 7% - 12 % after the merge. Lido allows users to stake any amount of Ethereum in exchange for stETH, which can be used for lending, collateral, and other purposes, while still collecting daily staking rewards. A user's balance will increase once each day as their staked ETH creates staking incentives, allowing them to receive the value of their staking rewards. Users can unstake at any time through the use of stETH-ETH liquidity pools. This unique advantage of liquid staking that Lido provides to holders of Ethereum is the reason behind the massive surge in TVL. These TVL numbers will likely increase after the successful Ethereum Merge upgrade.
Conclusion
DeFi tokens prices have finally started showing strength after months of the downtrend. Aave has launched its new version and brought new innovation to the space, while Uniswap has continued its dominance in the DEX space. Users are growing at an impressive pace, and it doesn't appear the growth will be stopping soon. Lido's liquid staking feature has attracted lots of capital on its platform. Overall, DeFi appears to be in a good state. The only area where this space is lacking is not much interest from investors in DeFi tokens. The weak tokenomics is the root cause behind it. Current tokenomics of most protocols are only beneficial for the short term. As time passes, the selling pressure on these tokens increases due to the dumping of tokens by yield farmers. Change in tokenomics which is beneficial for the long term might attract investors again.