The argument for truly decentralized finance is more vital than ever
Major decentralized finance (DeFi) protocols are showing an uptick in user and trading activity amid one of the biggest meltdowns in crypto history. Over the past seven days, decentralized exchanges have done $31B in volume, showing a staggering 178% growth.
- Spike in the activity we see is likely caused by users exiting centralized platforms to decentralized ones.
- As the price of both ETH and BTC dropped significantly of late, traders are moving into stablecoin positions amidst the crisis.
- Peaking metrics on Wormhole Network likely due to Solana.
- Between November 6 and 13, Uniswap saw just over $17 billion in trading volume, predominantly from ETH and the two leading stablecoins, USDC and USDT.
- Maple Finance sidesteps FTX catasthrophe.
FTX is teaching us a lesson
While the world watches FTX burn, a more prominent trend emerges that has blockchain and crypto advocates excited for a future of decentralized finance. DeFi is showing its metal as a place where users take total control over funds and dont give up access to custodial exchanges like FTX.
The significant difference between a decentralized platform and a centralized one like FTX is that liquidity comes from users, not investors or institutions. All operations in DeFi are 100% transparent and irreversible. A situation like FTX could never arise on a DeFi platform where token holders vote on how a platform is run and all positions are transparent.
Moreover, by design, there are no central points of failure on DEXs. All DEX activity happens on-chain—it’s transparent, verifiable, and approved by the users. Funds are never traded without explicit approvals and can be accessed at all times.
One thing that can occur, however, is that the treasury of the DeFi dapp was kept on FTX or that FTX invested in the platform in FTT, or that it took loans to facilitate operations. That’s why alongside the analysis of rising figures, we will indicate which platforms have responded to our request for transparency regarding their exposure to FTX and Alameda.
Not your keys…
Another critical factor here is that the broader crypto audience that got involved in the last 18 months using centralized platforms like FTX, BlockFi, or Crypto.com now realizes one of the fundamental rules of crypto is as crucial as ever – not your keys, not your crypto.
Much of the spike in activity we see is likely caused by users exiting centralized platforms to decentralized ones as fear of them halting withdrawals grows as liquidity dries up. Alongside this, we see increased activity as the price of both ETH and BTC dropped significantly of late, and traders are moving into stablecoin positions amidst the crisis.
Moreover, DeFi is still working and showing people they can retain total control by exercising more authority over their assets and not placing trust in third parties.
Down the Wormhole
Wormhole Network is a message-passing protocol connecting high-value blockchains. Dapps leverage the messaging layer to facilitate interoperability between different blockchains. Developers plug Wormhole into their dapps to send data cross-chain. Moreover, Wormhole performs operations in the background of some leading DeFi applications.
Wormhole is connected to Solana, Terra, Ethereum, Binance Smart Chain, Polygon, Avalanche, Oasis, and more blockchains. The connection to Solana is likely the reason for peaking metrics, as their exposure to the demise of FTX is very high. In short, Alameda and FTX held a lot of SOL tokens, and the fear was that they would dump them to raise funds.
The average volume of sent messages on Solana was hovering around 500 daily. Starting on November 7th, the figure rose dramatically, peaking at around 3,000 on November 9, showing an increasing number of transactions taking place on Solana as FTX collapsed. The spike is evident compared to other blockchains, such as Ethereum and BNB Chain.
Looking only at Wormhole Solana data on DappRadar shows a similar picture: the number of UAW interacting with Wormhole swelled over 185% to around 4,000, accounting for almost half of all the wallets connected to the dapp across all chains in the previous week.
Maple Finance sidesteps catastrophe
Maple Finance is an institutional capital marketplace focused on uncollateralized lending that predominantly operates on Ethereum and Solana. Simply put, they provide liquidity for finance dapps and other lenders. Most importantly, Maple is the largest project in the unsecured lending category.
According to DeFi Lama, In the aftermath of the collapse, the total value locked on Maple Finance grew from around $15 million to $150 million. If we include borrowing and staking, that figure climbs to more than $300 million. Borrowing accounts for $130 million of that extra $150 million.
DappRadar reached out to Charlotte Dodds, Marketing lead at Maple Finance. She told us there are no loans to Alameda from any of the pools on Maple, and the exposure to FTX and FTT amongst active borrowers is limited.
Moreover, all outstanding loans to Alameda were closed in September 2022, evidence of which can be seen here. She went on to say that delegates hold themselves to the highest credit standards to provide competitive risk-adjusted returns to Lenders. These practices returned 99% of all funds to lenders across the protocol through a stormy six-month period.
These standards also led Orthogonal to close its single-borrower pool and offboard Alameda as a borrower this summer. Furthermore, M11 Credit offboarded Alameda on September 4, and Credora offboarded in August after just one loan. On the flip side, Maple divulged that they have some limited indirect exposure through users to FTX, but that overall borrower exposure to FTX and FTT is limited.
There are 37 active loans totaling $227 million across Maple to borrowers Amber Group, Auros, DV Trading, Flow Traders, Folkvang, Nibbio, Portofino Technologies, Orthogonal Trading, Reliz Ltd, Symbolic Capital, Wincent, and Wintermute. Pool delegates have visibility into borrowers’ current FTT holdings and hedged positions, use of FTT as collateral, and amount of assets held with FTX.
Based on the information provided to delegates and the use of on-chain tools, we believe borrowers have sufficient equity cushions to withstand funds being lost to FTX, continue profiting from volatile markets, and ultimately service their loans on Maple as expected, she continued.
Uniswap keeps flexing
Uniswap is a leading multichain DeFi protocol in bragging mode. By design, the platform has no control over user funds outside the prescribed allowances. Meaning that even if Uniswap were exposed to FTX, there would be no way they could stop users from withdrawing funds. A fact that many people only recently came to learn from insightful Tweets like this.
Between November 6 and 13, the platform saw just over $17 billion in trading volume, predominantly from ETH and the two leading stablecoins, USDC and USDT. The last time Uniswap saw such weekly trading volume was in the second week of May 2022, when the price of ETH dropped from almost $3,000 to just over $950 over two months.
DappRadar data compliments the trend, and we see the number of UAW interacting with Uniswap grew by more than 22% week over week while the number of transactions swelled by almost 20% to over 288,000. At the same time, trading volume grew to over $71B, a rise of 104%—the bottom line. Uniswap is safe and functioning as intended, showing the world the true power of self-custody and decentralized finance.
Sushi is still served
Sushi is one of the most used multi-chain DEXs in the industry, deployed on more than ten blockchains and supporting thousands of tokens. Users can trade, earn, stack yields, lend, borrow, and leverage on one decentralized, community-powered platform. Sushi is, most importantly, censorship resistance and immutable. Sushiswap runs on code that cannot be changed or taken down. The same as Uniswap.
The platform has also been pushing out its chest, reminding users of the critical rule – not your keys or crypto. Further reminding users that in DeFi, withdrawals can’t be halted and whether users are swapping or providing liquidity – they will always be asked to sign the transactions for these actions.
We see an uptick in the number of wallets connected to the platform of over 25%, taking the figure to over 25,000 wallets connected in the past seven days.
Give an inch. They take a mile
Multi-chain DeFi protocol 1inch was always a significant player in the space but has seen improved metrics as FTX collapsed. On November 11, one day after FTX filed for bankruptcy, they announced on Twitter that in the last 24 hours, total direct volumes on 1inch exceeded $1.94B and that In the last three days, the number of daily users of 1inch protocols increased by almost 20%.
Complimenting this is a growing number of UAW connecting to 1inch and completing transactions. Week over week, the number of wallets connected to 1inch grew more than 12% while volume hit 5.73 billion dollars.
DeFi or bust
The industry has taken a big hit these last seven days. Even for a space that seemingly goes through turmoil every week, the collapse of FTX and Alameda is significant for more reasons than one.
On a human level, people will lose everything they worked to save and accumulate. Thousands, if not millions of dollars, all gone in the blink of an eye. But it could have all been so different if average Joe ever heeded the warnings from blockchain and DeFi advocates about self-custody instead of heading to centralized exchanges that arguably offer a more streamlined but risky experience.
Moreover, if DeFi can begin combining the aspects users found appealing about CEXs with the self-custody and transparency of DeFi, then the recipe appears to be tasty. Like Uncle Ben said – with great power comes great responsibility – but who’s ready for it?
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The above does not constitute investment advice. The information given here is purely for informational purposes only. Please exercise due diligence and do your research. The writer holds positions in various cryptocurrencies, including BTC, ETH, and RADAR.