After a year of exponential growth and activity, the decentralized finance (DeFi) sector is beginning to cool.
In Q1 2021, the dollar value of crypto assets under management by DeFi applications appeared to grow 150%, from roughly $20 billion to $50 billion. However, the majority of this activity reflects the rising dollar value of ETH and other Ethereum-based tokens, not growth in the real number of crypto assets under management.
Adjusting for this “price effect,” by fixing crypto asset prices over a 90-day period, we can see that total value locked (TVL) in DeFi grew 50% over the quarter, with a gradual correction towards the end of March.
Trading volume on decentralized exchanges (DEXs) also saw a similar pattern of steady growth and a slight decline near the end of the first quarter.
The sector that stole DeFi’s thunder is the non-fungible token (NFT) industry, with an over 25x increase in trading volume and valuations over $2 billion for certain marketplaces.
NFT marketplaces like NBA TopShot are fast approaching the same levels of user activity as the top DeFi apps. However, it remains to be seen how much of the NFT sector’s initial burst of activity will carry through into the rest of the year.
NFTs are unique and indivisible crypto assets that can represent a variety of goods such as art, video, music, real estate, news stories and even tweets. The ownership of NFTs are verifiable through a public blockchain like Ethereum, which makes them difficult to forge but easy to authenticate.
Over the past three months, financial and mainstream media has been transfixed by the novelty of NFTs and their adoption by deep-pocketed investors. Renowned British auction house Christie’s sold an NFT artwork by the artist Mike Winkelmann, aka Beeple, for a record-breaking $69 million. Shortly thereafter, Sotheby’s, another reputable auction house, announced on March 16 it would be making plans to host its own NFT art sale.
For all the hype around NFTs this past quarter, value in and user activity for DeFi applications remains stable.
The two most popular decentralized applications (dapps) by number of active accounts across all general purpose blockchains in Q1 2021 are both DEXs. Uniswap, which runs on Ethereum, ended the quarter with an estimated 55,000 active accounts. The runner-up, PancakeSwap, which runs on the Binance Smart Chain, had nearly 50,000.
Much of the DeFi sector’s value and activity, which accumulated to dizzying heights over 2020, has remained constant into 2021 despite the novelty of its applications being outshone by NFTs in the first quarter.
To read more about crypto industry trends and performance in Q1 2021, download CoinDesk Research’s latest Quarterly Review available to read for free from the CoinDesk Research Hub.