The total value locked in DeFi protocols across the blockchain industry has shrunk by 23% from the end of December 2021 as falling crypto prices and a bearish feel wash over the industry. Currently estimated at approximately $178 billion in TVL, Ethereum still holds the lion’s share despite the increased competition. The leading blockchain retained a 65% grip on DeFi activity according to the latest DappRadar January Dapp Industry Report.
Essential to keep in mind is that TVL represents the total amount of value held by smart contracts at any given time, exclusively in crypto-assets and stablecoins. Stablecoins involvement has been more significant this time around as traders now swap out to crypto-assets pegged to the dollar or euro. Alternatively, stake or pool these for rewards. Resulting in TVL dropping less dramatically for the reasons outlined above. Overall, however, falling token prices organically reduce the value of TVL in dollars as the value of the assets held within the contracts has decreased.
Despite this nuance, activity in DeFi is also down as DeFi dapps appear to be more sensitive to the crypto market. Not surprising given their functionality is trading and leveraging cryptocurrencies, most of which are down by almost 50% since the highs of 2021.
Usage of DeFi dapps fell 3% in January compared to December last year, with 825,000 UAW connected daily to DeFi dapps in the last month. DeFi’s user dominance fell from 36% at the end of last year to 33% at the time of writing. In terms of TVL, Ethereum is still the dominant chain, holding 65% of the industry’s metric. However, this is a two percent decrease from the 67% dominance observed at the end of last year. At the time of writing, Ethereum holds $113 billion in TVL, 25% less than in December.
Battle for second place
Most interesting to observe is the battle between the networks accounting for the other 35% of the total value locked in DeFi. A figure that stands currently at more than $65 billion. BSC and Terra remain locked in a battle for the second position, with both holding more than $13 billion, although this month, their TVL decreased by 24% and 28%, respectively.
The biggest gainer in terms of TVL was the newly integrated Fantom network. The highly scalable Layer-1 solution almost doubled its TVL in the last 30 days surpassing $9 billion in January.
Solana appears to be losing its footing in the DeFi landscape on the flip side. TVL has consistently dropped over the last few months amidst a slew of negative press stories, not to mention a recent exploit through the network’s Wormhole finance token bridge. During this incident, a hacker drained over $320 million from the platform.
While it is important to remember the nuances around DeFi’s primary TVL metric, it is the yardstick by which the industry is measured. DeFi has certainly taken more of a backseat since the roaring summer of 2020, but it is far from over for the category. Moreover, we are seeing a convergence of gaming and DeFi, financial tools presented through gamified means. Platforms like DeFi Kingdoms on Harmony are a leading example.
However, will serious traders swap leverage, spot trading, and flash loans for collecting magic spells? We think not. Instead, GameFi and play-to-earn gaming is serving as a more visually friendly and frankly easier-to-digest onramp to crypto. Those on the fringes can participate for very little investment and potentially walk away with a reward. When inflation is set to hit its highest level in a generation, it’s not surprising to see people hunting for opportunities.
Of course, the journey doesn’t need to stop at GameFi. As mentioned, it’s an onramp. Some DeFi platforms have already announced a slight pivot to play-to-earn, while others like Abracadabra Money and DeFi Kingdoms implemented gamified mechanics from the start. Moreover, dapps can build games with a tight economic loop with their previous DeFi dapps. Potentially leading users to level up to more complex DeFi mechanics over time.
The blockchain industry moves at lightning speeds. DeFi most certainly isn’t dead, as remarked by some headline-grabbing media recently, it’s just reinventing itself and adapting to market conditions.
The above does not constitute investment advice. The information given here is purely for informational purposes only. Please exercise due diligence and do your research. The writer holds ETH, BTC, AGIX, HEX, LINK, GRT, CRO, OMI, IMMUTABLE X, GALA, AVASTR, GMEE, CUBE, RADAR, FLOW, FTM, BNB, SPS, WRLD, ATOM, and ADA.
