On-Chain Analysis: Is DeFi Benefiting From the Last Rally?
CMC Research

On-Chain Analysis: Is DeFi Benefiting From the Last Rally?

1 year ago

Metrics show a positive but timid response as people are still coping with recent liquidations and bankruptcies of large investors.

On-Chain Analysis: Is DeFi Benefiting From the Last Rally?
IntoTheBlock brings you on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry

Recent months have been difficult times for the DeFi space in crypto. Several large investors and institutions have been liquidated or filed for bankruptcy, most notably the complete collapse of Three Arrows Capital (3AC) and insolvency at Celsius. The subsequent chaos led to stETH depegging from ETH, as many investors and retail users quickly paid down loans on DeFi lending protocols to avoid liquidations.

As more people prefer to be in liquid and lower-risk positions, the circulating supply of ETH in DeFi has been gradually declining.

As of July 22, 2022 via IntoTheBlock’s DeFi Insights Indicators

However, with this current rally, Bitcoin and Ethereum have seen 14% and 37% gains respectively over the last seven days. The question is — are these gains translating into renewed optimism for the DeFi sector? The short answer is yes.

We have seen a 13% increase in total value locked (TVL) across all DeFi protocols, amounting to just over $10 billion entering the DeFi system. This is the largest inflow into TVL that we have seen over a seven-day window for that last month. When diving deeper into the indicators, we see that the increases are not uniform among the different categories of protocols.

As of July 22, 2022 via IntoTheBlock’s DeFi Insights Indicators

Protocols that have a collateralization component to them such as lending and collateralized debt positions (CDPs) have been growing slower than DEXes and liquid staking solutions.

An example can be seen between MakerDAO growing by 11%, compared to Uniswap and Lido growing 17.3% and 31.4% respectively over the same timeframe. This suggests that while people have turned more bullish on crypto recently, there is still a large amount of hesitancy to dive back into lending and leveraged positions where higher gains can be found.

This could be in part due to users taking a step back to evaluate how to re-enter DeFi with better risk management guidelines in place to avoid becoming the next 3AC. Risk management will likely be part of the next evolution of DeFi that encourages users to re-enter with enthusiasm. IntoTheBlock’s CEO has begun to explore the composition of risk components and how they can be better integrated into DeFi strategies.

TVL of Top 5 DeFi Protocols via IntoTheBlock’s DeFi Insights Indicators

Though many of the indicators show tepid enthusiasm for DeFi, Lido was the only protocol in the top 5 TVL that saw gains similar to Ethereum this week. This was in part due to their launch of wstETH for L2 networks. The rise in TVL for Lido and the continual increase in addresses holding stETH could indicate that people are still optimistic about DeFi and are preparing their assets to be ready to deploy in the future.

Addresses Holding stETH via IntoTheBlock’s stETH Indicators

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