Depressed volume, TVL, and dwindling Stables
It goes without saying, but winter doesn’t stop at year-end. While crypto losses are most of what is left of crypto activity in 2022, the activity has not come back yet.
Trading volumes on DEX have entirely collapsed, from ~$40bn weekly in Jan22 to ~$2bn. Uniswap remains the main contender, with Curve a distant second. The lower activity of the latter shows that the liquidity war that raged over the past 2 years is over for now.
Lower volume is highlighted by very lame price action in blue chip coins. BTC and ETH have been stuck around the same levels since mid June 2022.
Total Value Locked (TVL) in DeFi confirms such a dire picture, with TVL stuck at $40bn since mid June 2022 as well. Yields are not indeed attractive, with lending rates for stables hovering around 1%. The most attractiev risk-return remains ETH staking on Lido, which boasts the dominant TVL, side-by-side with MakerDAO which has embraced real world yields (aka “rwa” in DeFi).
With a poor lending proposition, stablecoins have flown away to TradFi where money market rates in USD are giving a better bang for your buck at ~4.5% with arguably a lot less systemic risk. Stablecoins continue bleeding, with the world split around USDT, one the side of offshore decentralized partisans, and USDC, on the US reg-compliant side. This status quo is a reflection of the lingering regulatory uncertainty in the US, which has been plaguing the crypto activity for a while.
Of course, the Anchor-Terra + 3AC + Voyager + BlockFi + Celsius + FTX + Genesis + DGC + crypto-related banks saga has not finished to unravel. Crypto and DeFi as you knew it in 2021 and 2022 is over. This failed “ hedge funds”, along with their shareholders, were also generous sponsors of the crypto ecosystem. FTX solely accounted for $2.1bn funding of the crypto projects in 2022, similar to Paradigm, and 60% of A16z’s $3.6bn.
What is DeFi crypto going to be rebuilt into is anybody’s guess. For now, it looks like the developer activity has come to a trickle. As per Rich Falk-Wallace, ETH open source dev counts are collapsing.
Similarly, non-EVM weekly active developers dropped consistently since May 2022 as the Anchor Protocol blowup started to contaminate the entire ecosystem.
Now for the sliver of hope
- There was some decent price activity in coins since the start of the year, notably Lido, Cardano, Solana, Maker in the +30% range. This could be a premise to a new FOMO. Who knows?
- Ethereum has proven to be the most robust chain in 2022, with the successful merge, and had consolidated the status of ETH as a blue chip asset.
- In DeFi, the migration to RWA (real world asset) is taking place slowly (Maker) and clumsily (TrueFi, Maple, Goldfinch), but surely. Teams will innovate at the boundary of DeFi and TradFi, setting up acceptable standards for KYC/AML and risk management.
- Large institutions have been largely unscathed by the 2022 crypto debacle, yet they have now set up entire digital asset management teams. What they lack in development talent, is compensated for by their vast funding, and knowledge of financial engineering. I am betting on their ability to create joint ventures to develop protocols and Dapps that serve their digital asset transformation.
- Stablecoins are likely to make a comeback, and the adoption of payment settlement providers (Visa, Mastercard) will boost volumes and value.
- I voluntarily leave NFTs, DAOs, and web3 computing aside for now, as they could be an entire chapter altogether.
Slow and steady wins the race.
360 Advisory LLC is a Boston-based RIA managing investments, including crypto
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