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4-ABCs of DeFi Data Analysis for Beginners.
Author: Jimmy@Footprint, Aug 2021
It’s not for nothing that the summer of 2020 has been called the “DeFi summer”.
But since then, DeFi has only continued to grow. The Ethereum ecosystem saw enormous development, the number of wallets has grown to 3 million addresses and the daily TVL (Total value locked) reached $100 billion dollars.
What’s more, this TVL didn’t crash when the market prices of tokens fell in June.
The TVL of DeFi since 2019 Data source: Footprint
At its most basic, decentralized finance is the opposite of centralized finance. Leveraging decentralization, transparency, standardization and security, DeFi promises to gradually bring traditional finance activities on the chain, transforming this industry.
The VolumeL of DeFi since Jan 2020 Data source: Footprint
DEX, or decentralized exchange, is a peer-to-peer (p2p) online service that allows direct cryptocurrency transactions between two interested parties.
In the chart above, you can find the DEX volume of Q2 2021. This refers to the total amount of dollars that has been traded or held on the DEX. As you can see, the volume increased 80% over Q1 2021, and 1000x year-on-year. The volume of DEX has now reached 10% of centralized exchange volume and keeps increasing—July’s hitting 153 billion.
This indicates that DEX has become more and more popular among crypto investors . Someone who is just starting to explore DeFi and blockchain data with a tool like Footprint can therefore track DEX volume to find the leading players.
The Market Share of DeFi since Jan 2020 Data source: Footprint
According to Footprint, data shows that Uniswap has become top DEX in market volume since the release of the Uniswap V3 protocol, which is designed to increase capital efficiency by increasing the capital efficiency by 4,000 times compared to V2. Uniswap V3 allows liquidity providers to set customized price ranges of market-making, for example to set bottom prices higher than current prices or vice versa.
It’s also important to know that there are also dozens of new or niche options as well. Since the world of cryptocurrency is notoriously volatile, an unheard of DEX today can easily grow to a major player next year.
Knowing that Uniswap V3 has the largest volume, you can be confident it will have less trading slippage—which refers to situations in which a market participant receives a different trade execution price than intended—and higher rewards for LP.
The TVL of Lending since 2020 Data source: Footprint
After exchanging the tokens needed through a DEX, investors can meet the requirements of depositing and borrowing through DeFi lending platforms. The TVL of the main lending platforms in Q2 2021 has increased over 4 times over Q1, and 25 times compared with Q2 last year. July’s TVL was 19 billion.
The Market Share of Lending since 2020 Data source: Footprint
Among the lending platforms, Aave, which went public in 2020, has taken the lead position in terms of market share since June 2021. Aave offers “flash loans”, which allow users to borrow any available amount of assets without putting up any collateral, as long as the liquidity is returned to the protocol within one block transaction.
Compound, which launched in 2019, went in the other direction. Its flagship product is Compound Treasury, designed for non-crypto businesses and financial institutions.
Looking at the rate of outstanding loans divided by deposits of Aave and Compound, the capital efficiency of Aave increased significantly since May.
The TVL of Yield Aggregator since Jan 2020 Data source: Footprint
Whereas traditional, centralized finance uses asset management, DeFi uses yield aggregators. Yield aggregators playing a key role in the yield farming economy by leveraging different DeFi protocols and strategies to maximize user profits. The yield farming process usually requires investors to lock up or stake funds, providing variable or fixed ROI in return.
Yield aggregators only hit the mainstream last June, but their TVL has already reached $5.69 billion in July. TVL of yield aggregators increased 130% from Q1 to Q2. Last month’s TVL was 5.69 billion.
Since yield aggregators have become a mainstay of DeFi investing, Yearn Finance has always led the pack. Yearn gained $18 million in revenue in Q2, which is 236% more than Q1.
The Market Share of Yield Aggregator since Jan 2020 Data source: Footprint
The DeFi project has undoubtedly had its summer since last year, and this year the DeFi project has experienced some ups and downs, but it is still undeniably thriving. The changes the DeFi project can bring to our financial world in the future are even more worthy of our anticipation.
Footprint is a powerful yet easy-to-use analytics tool to uncover and visualize blockchain data. The product puts user experience first—whether you’re an analyst, data scientist, developer, student, teacher, or executive. It provides an intuitive, drag-and-drop interface for interactive data queries.