1-Footprint Industry Overview: July 2021 DeFi market recovering, can we have confidence in August?

Author: [email protected] Date: 8 August 2021

June was a rocky month for DeFi, coming off a fall in token prices in May, a drop in TVL and low user activity across all types of platforms.

Although this is not the first time we have seen a significant drop in token prices, uncertainty in the market has lowered expectations for users involved in DeFi, with more uncertainty about when the market will recover to the levels seen in May.

Footprint's July monthly report looks at multiple metrics to assess and anticipate trends for August.

TVL on multiple chains trending upwards, Polygon and Terra have recovered to May levels

According to data provided by Footprint, the TVL of major five blockchains,i.e. Ethereum, Binance Smart Chian(BSC), Polygon, Terra, Solana, in July was $123 billion. Ethereum occupied the top spot with $96.83 billion, accounting for 78.7% of the market share, continuing its dominant position. In July, Ethereum achieved a growth rate of 15.8%, although the growth rate did not show outstanding performance compared to other chains. However, from the current growth rate, it is expected that the TVL of the Ethereum in mid-August will exceed the level of May and reach a new high; while the TVL of the BSC Compared to June, it has increased by 10.73% to reach $14.55 billion. Nevertheless, it has still maintained a stable level, and it will be difficult for the BSC to return to May peak levels in August.

The more impressive performers in July were the Polygon, Terra and Solana chains, with Solana's improved TVL on the Raydium platform giving it a growth rate of 135.6% and a market share of 1.1% from 0.6%; Polygon and Terra have surpassed June's TVL and recovered their May levels, accounting for a market share of 5.4% (Polygon) and 2.9% (Terra). As the size of DeFi deployed on Polygon and Terra chains gradually expand, more and more platforms are considering deploying on different chains. They are expected to become strong contenders for the Coin Smart chain in the near future.

We have further cross-chain analysis from the top two TVL ranked Ethereum and Coin Smart chains.

1.TVL

Lending, Asset Management and Yield Aggregator platforms saw varying degrees of increase in July

Taking a closer look at the platforms that contributed more to the TVL of the Ethereum and the BSC, Aave ($9.99 billion, +13.3% MoM) was the highest contributor to the Ethereum, followed by Curve ($9.31 billion, -5.8% MoM), Compound ($8.95 billion, +12.3% MoM), InstaDApp ($8.73 billion, +34.7% MoM), and MakerDAO ($7.59 billion, -17.9% MoM).

Why is InstaDApp gaining ground so quickly among all the other projects? We see from the data output by Footprint that the second-highest growth rate after InstaDApp is in the lending category. With its powerful features such as one-click debt transfer, debt swap and collateral swap, InstaDApp allows users involved in lending investment activities to convert assets between different agreements. This functionality provides users with a cross-platform transaction "bridge" that makes operating on multiple lending platforms easier while reducing transaction costs.

The most significant contributor to the BSC was PancakeSwap in the Dex category, with a TVL of $4.83 billion in July, up 12.9% from June and accounting for 33.2% of the overall BSC's TVL. In terms of growth rate, the highest growth rate was achieved by Alpaca Finance, with a growth rate of 23.5%.

Curve continues grow on decentralised exchanges as PancakeSwap overtakes Uniswap V2 in second place

As the crypto market recovers, TVL for DEX platforms gained in July.

PancakeSwap, which grew 27.1% MoM from June, was the highest gainer in the head DEX category, followed by Uniswap V3 (+11.1% MoM), SushiSwap, (+8.7% MoM), Curve (+2.5% MoM), and Uniswap V2 (+1.8% MoM).

PancakeSwap, which had the highest growth rate for the month, made a significant breakthrough in July, overtaking Uniswap V2 in second place in the TVL rankings for the DEX category.

Although Curve held a modest TVL growth rate for the month, it has been popular. It has held the leading position by offering low transaction fees for trading multiple classes of stablecoins and CRV token mining. However, there is no denying that introducing the new AMM mechanism, which can provide liquidity providers with more flexibility, will be a solid rival to PancakeSwap and even Curve in the future.

Aave continues to expand its market share in the lending category with TVL exceeding $10 billion

Aave's TVL performance topped other lending platforms. Up to $11.97 billion—or 27.1%—from June, it's the first lending platform to exceed $10 billion, accounting for 42% of the market share.

Compound's TVL was up 37.5% compared to June, but the May dip cut this in half. The higher growth rate only allowed Compound to maintain its market share at a level relative to June, accounting for 31%.

On the other hand, MakerDao's market share has been shrinking this year, accounting for only 27% in July.

2.Lending

Aave's deposit volume at record high, Compound's deposits up 74.7% MoM

According to data provided by Footprint, the lending platforms ended July with a deposit balance of $37 billion—not quite back to the all-time high deposited in May. However, with increased user acceptance and demand for DeFi lending, the category is expected to set new records for deposit volume in August.

As the current leader in the lending category, Aave's deposit volume in July reached a record high of $16.5 billion, up 32.1% MoM from June and 11.3% from the $14.8 billion set in May this year.

Aave is closely followed by Compound, which also achieved good results in July, with a Deposit volume of $14.5 billion, up At 74.7% MoM. It has not yet returned to the $17.4bn generated in mid-May, but August is expected to see it surpass May levels and possibly overtake Aave with its higher growth rate.

On the contrary, the impact of the May cryptocurrency price crash was significant and sustained for MakerDAO. After a steep drop in deposit volume in mid to late May, it has remained in the range of $5-6 billion for the past two months. In July, when the deposit volume of other platforms was growing at a rate of more than 30%, MakerDAO's growth rate in July was only 10.3%, well below the industry average. If we expect MakerDAO's August deposit volume to return to the $13.7 billion set in May, the chances of that scenario coming true are slim.

The top three lending category platforms are leveling out in terms of outstanding balance

Compared to June，with Aave representing the biggest market share of outstanding balance，the top three lending platforms share an even proposition in July. From the deposit data shown above, that of Aave and Compound is 3 times the size of MakerDAO. Combining the two indicators, MakerDao can be concluded to have the highest capital utilization of the three. However, there are some new trends in the industry that are not conducive to the development of lending-type projects, such as loopholes in the contract, platform attacked, price plummeting, especially the shortfall event might increase the possibility of borrowing users being liquidated increases, and the operational risk of the platform increases.

3.Market Cap

Uniswap continues to hold the top spot in market cap among DEX platforms

Throughout July, the Dex-like platform Token market cap rose the most for Synthetix Network, up 46.6% MoM, although it sits in fifth place, just $1.4 million away from Sushiswap in fourth place. It seems likely that Synthetix Network will overtake Sushiswap, THORChain and PancakeSwap to return to the number two position it held at the beginning of the year.

For Uniswap, which continues to hold the top spot, there is still a double difference in market cap in July compared to its peak in May due to the drop in coin prices. Still, as mentioned above, Uniswap continues to make upgrades and iterations to create higher returns for liquidity providers, and its market cap is expected to increase in the future.

MakerDAO regains 2nd place in by market cap among lending platforms

Unlike June, lending platforms had a thriving July. None were stronger than AAave, with a market cap of $420 million, up 37.5% MoM from June. The competition was fierce in positions 2-3, with MakerDAO finally making a push at the end of July to finish in 2nd place with $2.75 billion, outpacing Compound by $514 million, and its growth rate for the month was not bad at 23.4%. In 3rd place, Compound also performed well, with a growth rate of 31.2%, gradually catching up with the 2nd place. Kava and Venus, in 4th and 5th place, were not far behind the Top 3, but they also showed varying degrees of growth in July, with Venus in particular up 55.1% for the month.

Harvest Finance sees 367.7% growth in July, gaining momentum

The best performer was Harvest Finance in July, which returned to the billion-dollar level this month with a market cap of $148 million, up 367.7% MoM from June. With the rapid growth of Harvest Finance, Rari Governance and Alpha Finance, the market share of the upper billion-dollar level of Yearn Finance remained constant. Although it maintained a relatively stable market cap in July ($1.197 billion), its Top 5 Yield Aggregator share has fallen to 68.1% of the market cap, down from 80% in June.

According to Footprint data, different categories of platforms and various indicators show that the crypto market has gradually recovered in July, and platforms are working hard to create better DeFi applications

The indicators point to August developing more positively than July.

Apart from that, in August, the Etherchain will complete the hard fork upgrade of EIP-1559. Keep an eye out for the August report, where we will examine whether transaction congestion and high Gas fees in the Etherchain have improved.