- Crypto’s DeFi sector has been trading in a bear market for over a year, with many major projects dropping more than 80% from all-time highs.
- MakerDAO, Aave and Uniswap traded downwards during the period despite maintaining or improving fundamentals.
- Compound, the second-largest lending protocol, has lost 92.5% in value and has fundamentally deteriorated overall.
Risk burdens such as equities and cryptocurrencies have trended downward throughout 2022 due to unstable macroeconomic conditions accelerated by Russia’s invasion of Ukraine in February. However, one crypto niche has struggled longer than the other. It is a DeFi token.
Ethereum DeFi slump continues
Although DeFi provided a clear product market fit and relatively strong fundamentals, many of the space’s key assets have been trading in a bear market for over a year.
The governance tokens of some of the crypto’s most popular DeFi protocols, including MakerDAO, Aave, Uniswap, and Compound, have plummeted in value between 80% and 92.5% from their all-time highs recorded in May 2021. Excluding the overall bleak, DeFi has been hit much harder than most other crypto assets, with Nasdaq falling 27% and Bitcoin bleeding 57.5% this year, penetrating almost every market.
Maker DaoThe MKR token, the protocol behind the popular decentralized DAI stablecoin, has dropped more than 79% to around $1,300 from its all-time high of $6,292 in May 2021. It has a market cap of $1.1 billion, less than DAI’s $6.8 billion. Interestingly, despite MKR’s weak price performance, Maker’s fundamentals have improved over the past year. DAI’s market cap has increased by around 40%, indicating that it still has utility within the DeFi ecosystem. DAI recently regained its place as the cryptocurrency’s premier decentralized stablecoin after Terra’s UST collapsed a few weeks after Terra’s Do Kwon promised to kill DAI. And while the protocol’s revenue hasn’t caught up with last year’s highs, Maker has so far averaged around $7.2 billion in monthly revenue, a slight decline from its 2021 average monthly average of around $7.41 billion. The Ethereum-based project will scale to StarkNet this year, which means users will have lower-cost access at Layer 2.
AbeDeFi’s largest money market protocol, DeFi, is also in a slump. The AAVE token is currently trading at around $98, down 85% from its all-time high of $661 in May 2021, despite improving fundamentals. Party Defi Llama’s dataAave held approximately $11.8 billion. Prior to the collapse of UST, the pegged total value had about the same amount of liquidity as at this time last year (Terra’s disappearance extended into the DeFi space as users rushed out of the ecosystem, draining liquidity from Aave and other protocols). According to Token terminal data, Aave’s price-to-sales ratio decreased from approximately 19.8x to 8.38x, indicating that the AAVE token has gained intrinsic value. Aave recently released a V3 update that includes cross-chain capabilities across Ethereum Layer 2 and other networks, but this has done little to help AAVE gain momentum.
Crypto’s largest decentralized exchange, Uniswap, also had a difficult year in terms of price/performance. Uniswap’s governance token, UNI, first offered to early users after Sushi’s “vampire attack,” is currently trading at around $5.60 per token, down 87.4% from its May 2021 high of $44.92. However, in terms of fundamentals, Uniswap has not experienced a major decline. Before the collapse of Terra, the total value pegged to all liquidity pairs on the platform was: $7.8 billion, or slightly below its all-time high, locked at around $10.3 billion. Meanwhile, in terms of trading volume, Uniswap currently boasts an average monthly. trading volume About 46 billion dollars. As of May 2021, Uniswap processed approximately $31 billion. Nevertheless, UNI has been bleeding since then.
compoundAnother lending protocol, described as a competitor to Aave, suffered the worst of the top four projects in terms of price. Compound’s COMP token is currently trading at $68.50, down 92.5% from its May 2021 high of $910. However, it is worth noting that Compound’s fundamentals have arguably weakened over the past year. Short-term financial markets declined in all key indicators including locked total value, gross profit, and price-to-sales ratio.
DeFi had auspicious operations in the summer of 2020, resulting in the advent of yield agriculture and a period of vigorous trading activity that became known as the “DeFi Summer”. It also outperformed the broader market in early 2021, but the sector has endured a brutal winter since the May 2021 crash. DeFi projects priced in terms of Bitcoin and Ethereum have far worse returns. DeFi’s price performance has been weak compared to the rest of the market as other crypto sectors such as NFTs and “alternative layer 1” gain vitality in the second half of 2021. DeFi reductions show no sign of conversion as the entire space is now struggling.
Disclosure: At the time of writing, the author of this article owns ETH, xSUSHI, and several other cryptocurrencies.