The Smart Way to Talk About DeFi’s $22B

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Decentralized Finance (DeFi), the crypto sector that caused all the fuss this summer, hasn’t quite returned to its old energy, but the slack is over.

“Raw DeFi numbers are at a peak and not fake,” Sam Bankman-Fried, founder of Alameda Research, told CoinDesk in an email. “But relative to the rest of crypto, they’re down from their peak, but up from their nadir.”

At first glance, it may seem like DeFi is stronger than ever. As measured by the sector’s preferred metric, Total Value Locked (TVL), the sector has added roughly $ 1 billion a day in value since the start of the new year – from $ 15.67 billion to $ 22.35 Billions of dollars at the time of this writing. However, much of this growth is due to the fact that asset prices have increased across the board.

“TVL is not the best indicator when ETH and all other cryptos are green for weeks,” Jesse Walden, founder of the venture company Variant, told CoinDesk in an email.

ETH, the asset that powers DeFi, traded at $ 737 on Jan 1, up to $ 1,182 as of this writing.

In other words, ETH is up a little over 60% and DeFi is up a little over 40%.

DeFi will boom again when a lot more assets are locked up there. It seems clear that most of the appreciation can be attributed to asset price increases, but that’s not the whole story.

“Uniswap alone pays out around $ 1 billion a day, so I think the ecosystem is undoubtedly growing,” noted Walden.

Look at the stablecoins

A great way to start DeFi upticks is to check out the action specifically on stablecoins, as these are not greatly skewed by price fluctuations.

DeFi Money Market Compound started the DeFi madness and the income farming for this application is still going strong. The website makes it easy to review deposits over time.

Looking at the three big stablecoins – USDT, USDC, and DAI – only USDT has really moved up on Compound, but it also has the smallest deposits by far.

Tether’s stablecoin has increased from just $ 91.5 million on Jan. 1 to $ 146 million today. By now, DAI has been basically a little over $ 1 billion, and USDC has been in the $ 800 million range all along. Nothing very exciting happens there, which is probably a kind of bell tower for the real action in the room.

Blockchain consultant Maya Zehavi agreed with the comments above. “In my opinion, DeFi only increased the leverage in the system a little, let’s say 5%,” she wrote via SMS. “The rest is just a price increase.”

If it’s not obvious, for those who believe the rally will continue, taking in a larger chunk of rising wealth can be a great way to make more profits. “During the bull market, more users are generally securing loans to use their positions at ETH,” said Stani Kulechov of the Aave money market (a protocol that turned a year old today) to CoinDesk via Telegram.

Kulechov shared data with CoinDesk showing over $ 1.5 billion in new deposits for Aave versions 1 and 2 combined. By far the largest intake was recorded at ETH itself. In 2021 alone, more than 450 million US dollars were deposited at the new ETH in Aave.

Also, once someone has reached a position they think they can afford, they can put it in a place where they can just earn a little more while waiting for the moon price.

Paul Veradittakit, Partner at Pantera Capital, emailed CoinDesk that the investment firm is closing many new deals in DeFi.

“We believe DeFi will drive the ecosystem, and that is our thesis,” he said. “Decentralized trading has periodically dwarfed centralized trading and will continue to grow proportionally, while use cases for synthetic assets, algorithmic stablecoins, and loans / credits show great promise.”