DeFi 2022 Annual Review: TVL fell by 76.1% overall, and the circulation of the four major stablecoins fell by 7%

Looking back at the development of blockchain in recent years, although concepts such as MEME coins, NFT, and GameFi have been popular at different times, DeFi is still the most important use case of blockchain so far. The various data in DeFi can reflect the current application situation. This year (January 1, 2022 to December 22, 2022), the data are summarized as follows:

The TVL of all DeFi projects on the public chain has dropped by 76.1% overall. Although Arbitrum's TVL has also dropped by 45.5% in the past year, it has risen to fourth place in absolute terms. The total circulation supply of the four major stablecoins USDT, USDC, BUSD, and DAI has dropped from 144.6 billion to 134.5 billion this year, an overall decrease of 7%. USDC and BUSD have seized part of the market for USDT. The trading volume of DEX has been on a downward trend since December last year, and Uniswap still accounts for 62% of the trading volume on Ethereum. The total deposits of the three major lending protocols MakerDAO, Aave, and Compound decreased by 76.1%. Among cross-chain bridges, Multichain ranked first in liquidity and trading volume, and Wormhole's TVL dropped the most by 94.6%. The ETH pledge ratio rose to 13.59%, Lido's market share was 29.23%, and 57% of the blocks used Flashbots MEV-Boost Relay. TVL: The total locked volume fell by 76.1% to US$39.73 billion.

Total locked value TVL is an indicator of DeFi adoption. According to DeFi Llama, the TVL of all DeFi projects (excluding indicators that are easily recalculated) has dropped from $166.58 billion to the current $39.73 billion, a drop of 76.1% this year.

If divided by public chain, among the three public chains with the highest TVL, Ethereum's TVL dropped from US$95.4 billion to US$23.41 billion, a decrease of 75.5%; BNB chain's TVL dropped from US$12.08 billion to US$4.17 billion, a decrease of 65.5%; Tron's TVL dropped from US$5.21 billion to US$4.26 billion, a decrease of 18.2%.

Surprisingly, Ethereum’s second-layer Arbitrum’s TVL is already in fourth place, although its TVL has also dropped from $1.98 billion to $1.08 billion in the past year, a drop of 45.5%.

The one with the biggest drop is undoubtedly Terra (now Terra Classic), which collapsed in May. Terra's TVL rose from US$11.81 billion at the beginning of the year to US$21.02 billion in May, and now it is only US$5.29 million.

Trading, lending, and liquidity pledge are still the three types of projects with the largest amount of funds in the blockchain. In the case of a decline in the overall market valuation, DEX, which produces a large number of tokens through liquidity mining, has suffered a serious blow. DEX is the main project for public chains to attract funds. Many public chains use native tokens as mining rewards for DEX to attract short-term liquidity, and fall into a vicious cycle in the context of mining, withdrawal and selling.

Stablecoins: USDT circulation has decreased by 20.4% compared to its peak

With the Fed raising interest rates and the crypto market in recession, the issuance of stablecoins has also seen a rare decline. According to Investing.com data, the current US 1-year Treasury yield is 4.63%, while the deposit APY of USDC in the largest lending protocol Aave Ethereum market is only 1.16%.

According to data from glassnode, the total circulating supply of the four major stablecoins USDT, USDC, BUSD, and DAI has dropped from 144.6 billion to 134.5 billion this year, an overall decrease of 7%, but USDC and BUSD have maintained growth.

The circulation of USDT dropped from 78.3 billion to 66.2 billion; USDC increased from 42.3 billion to 44.3 billion, BUSD increased from 14.6 billion to 18 billion, and DAI dropped from 9.2 billion to 5.8 billion. USDC and BUSD took away part of USDT's market share, and decentralized stablecoins represented by DAI were more affected after the collapse of Terra/UST.

The circulation of USDT reached a historical high of 83.2 billion in May this year. Compared with the high point, it has dropped by 20.4% and is still on a downward trend.

Judging from the historical data of the past years, a large reduction in the market value of stablecoins is very rare, and it seems to have only occurred once in the second half of 2018. According to CoinMarketCap data, on August 27, 2018, the market value of USDT was US$2.82 billion, and by November 16 of that year, it had dropped to US$1.68 billion, a decrease of 40.4%.

DEX: Trading volume has been declining since December last year

According to the dashboard of Dune Analytics co-founder hagaetc, the monthly trading volume in DEX showed an overall upward trend before December 2022, after which it began to gradually decline. Taking November, which has already ended, as an example, the trading volume of US$85.6 billion in November this year was 44.1% lower than the US$153.1 billion in the same period last year.

In terms of market share, Uniswap continued to maintain a 62% share of trading volume, Curve's share increased from 12.9% to 19.6%, Balancer increased from 1.9% to 6.8%, DODO increased from 1.2% to 4.9%, and Sushiswap decreased from 11.2% to 1.6%.

The decline in Sushiswap’s market share and the increase in other DEXs are the result of DEXs competitively lowering their transaction fee ratios. Sushiswap, with a fixed fee ratio of 0.3%, is gradually losing its competitiveness.

Related reading: "Data Analysis: How have decentralized spot and contract trading protocols performed recently after the CeFi trust crisis?"

Lending: The total deposits of the three major lending protocols MakerDAO, Aave, and Compound decreased by 76.1%

The top three lending protocols on Ethereum, MakerDAO, Aave, and Compound, still maintain their positions. However, on other chains, Compound's TVL has been surpassed by JustLend on Tron, and Aave's TVL was briefly surpassed by Anchor on Terra.

According to DeFi Llama, MakerDAO’s TVL has dropped 65.5% from $17.5 billion to $6.04 billion now; Aave’s TVL has dropped 73.5% from $14.21 billion to $3.76 billion; and Compound’s TVL has dropped 81% from $8.9 billion to $1.69 billion.

Because MakerDAO is a CDP type, it can only lend out DAI issued by itself, and TVL is the total deposit; while deposits in Aave and Compound can be used as loans for others, and TVL is total deposits minus total loans. Aave's total deposits fell from $26.2 billion to $5.64 billion, a decrease of 78.5%; Compound's total deposits fell from $14.9 billion to $2.35 billion, a decrease of 84.2%. The total deposits of the three major lending protocols, MakerDAO, Aave, and Compound, fell from $58.6 billion to $14.03 billion, a decrease of 76.1%.

In some segments of lending, Euler, which grades collateral, and Morpho, which optimizes deposit and lending interest rates, have occupied a certain market share, with TVLs of US$184 million and US$128 million respectively; unsecured lending such as Maple has seen a large number of bad debts following the collapse of FTX; Silo, which separates each lending market, has a TVL of only US$21.94 million.

Cross-chain bridge: Multichain ranked first in liquidity and transaction volume, and Wormhole's TVL dropped by 94.6%

Cross-chain bridges need to lock up a large amount of funds, but usually the transaction volume is not high, the handling fee ratio is also low, and it is easy to have security accidents, which is a difficult project. This year alone, cross-chain bridges that have suffered losses of hundreds of millions of dollars due to hacker attacks include Wormhole, Ronin Network, BNB Chain, Horizon, and Nomad. The first three have been compensated by the project owners.

According to DeFi Llama data, in the past month, the general cross-chain bridges with the highest transaction volume and their transaction volumes were: Multichain $817 million, Celer cBridge $543 million, Stargate $410 million, Across $173 million, Synapse $150 million. In terms of the amount of locked funds, Multichain's $1.6 billion TVL also ranks first among cross-chain bridges.

Similar to the competition for transaction volume in DEX, Multichain also makes concessions on cross-chain transaction fees. For example, for USDC cross-chain transactions between Layer 2 Optimism and Arbitrum, Multichain only charges 0.19 USDC as gas fee and waives other fees. For cross-chain transactions between other non-Ethereum EVM chains, Multichain generally charges a fee of 0.02%.

Another cross-chain bridge worth noting is Wormhole's Portal, whose TVL reached $4.74 billion in early May this year. However, due to its high correlation with the Terra and Solana ecosystems, it has experienced a series of thunderstorms this year, and its current TVL is still $255 million, down 94.6% from its peak. Judging from TVL alone, Portal is still at the forefront of cross-chain bridges, but according to DeFi Llama statistics, its trading volume in the past month was only $52.01 million.

Liquidity pledge: ETH pledge ratio increased to 13.59%, Lido market share was 29.23%

According to the data from Staking Rewards, even though the staking ratio of Ethereum is only 13.59%, the staking funds of $20.2 billion are much higher than other public chains. In the staking of ETH, according to the data compiled by Dune @hildobby, there are currently 15.74 million ETH staked, an increase of 85.6% compared to 8.48 million ETH at the beginning of the year.

Not only projects such as Lido and Rocket Pool that focus on liquidity staking are providing ETH staking services, but centralized institutions such as exchanges are also using their advantages of large numbers of users and funds to provide services. The top five staking entities and their market share are: Lido 29.23%, Coinbase 13.1%, Kraken 7.61%, Binance 6.25%, Staked.us 2.9%. Most liquidity staking service providers have issued liquidity staking tokens for users. In the current situation where the pledged ETH cannot be redeemed, these liquidity staking tokens have a slight negative premium.

Using Flashbots MEV-Boost Relay enables validators to increase their earnings from MEV (Maximum Extractable Value). This advantage has led to a recent increase in the proportion of blocks produced through Flashbots MEV-Boost Relay to as high as 57%, which has caused concerns about Flashbots. Flashbots is also taking measures to strive for decentralization.

Related reading: Flashbots to launch SUAVE: The trade-off between censorship and decentralization