DeFi Money Shifts Towards BNB Chain and Polygon

defi money shifts towards bnb chain and polygon
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The winners and losers of DeFi following the collapse of FTX

All sectors of the DeFi market were affected by the fallout from the FTX insolvency crisis. Once it became clear that the centralized exchange would collapse, investors moved quickly to reallocate their resources. During the shakeout, some blockchains came out as winners while the total value locked into other networks dropped massively. 

Highlights

  • Overall total value locked (TVL) on decentralized exchanges dropped by 31% between November 7 and November 15.
  • Solana is the most notable loser in the list of blockchains that have suffered over the past 10 days. Users locking their assets into Ethereum, Avalanche, Ronin and Optimism have also taken their funds out of the networks.
  • TVL on two blockchains – BNB Chain and Polygon – hasn’t dropped by less than the average across the industry. Considering the impact of the FTX crash, shedding less TVL than competitor blockchains should be viewed as a victory.

Leading blockchains shed TVL

The FTX fallout continues to seep through the DeFi industry. Not only have many institutional and retail investors lost huge amounts of money over the past 10 days, data now shows that some of the biggest blockchains in Web3 are hemorrhaging TVL.

The situation has caused concern among many powerful people in the industry, not least the DeFi platforms that have done nothing wrong but now need to deal with the media tarring decentralized platforms with the same brush they’re using to smear FTX. 

DappRadar spoke to Julian Uribe, the co-head of business development at ApeSwap, about how this episode could impact the wider Web3 space.

FTX´s meltdown was a massive blow to the continued growth of the crypto industry. Thankfully, ApeSwap and our team remain wholly unaffected by the situation, keeping true to our decentralized ethos. While we feel for all those truly impacted, the fall of FTX truly highlights the importance of decentralization and validates the work we´ve been doing to grow the space. We hope that this catastrophic event will shine a light on more bad actors while further bolstering the rise of decentralized protocols.

Julian Uribe, Co-Head of Business Development at ApeSwap

Between November 7 and November 15, TVL across all DeFi dropped by 31%. On November 7, when news of FTX’s insolvency problems dropped, DeFi TVL stood at $51.91 billion. By November 15, this number had fallen to $40.78 billion.

Data source: DappRadar

There are two reasons for this huge drop. Primarily, the decline resulted from the fall in the value of cryptocurrencies. Between November 7 and November 15, the following currencies all went down in price: 

  • SOL dropped 54%
  • ETH dropped 21%
  • AVAX dropped 27%
  • RON dropped 29%
  • OP dropped 26%.

The second reason DeFi TVL has gone down is that users have unlocked their staked cryptocurrencies from platforms on some blockchains and either moved them to another blockchain or are holding them in their personal wallets.

By comparing the drop in TVL of the blockchains above to the fall in the respective cryptocurrencies, we can see that the reallocation of assets actively contributes to the overall decline in TVL. Between November 7 and November 15:

  • Solana TVL dropped 68%
  • Ethereum TVL dropped 21%
  • Avalanche TVL dropped 30%
  • Ronin TVL dropped 37%
  • Optimism TVL dropped 33%.

One more data point highlights that it’s more than just a fall in the value of cryptocurrencies that have contributed to the overall decline in DeFi TVL. On November 7, the total global cryptocurrency market cap was $1.03 trillion. By November 15, this had fallen to $845 billion. This is a drop of 18%, far less than the overall drop in DeFi TVL of 31%.

Which DeFi platforms have lost TVL?

We can use TVL tracking tools to see which platforms have seen the assets staked in their contracts go elsewhere. As we’ve seen above, a large proportion of the drop in TVL was a consequence of depreciated cryptocurrency prices.

Solana

For instance, Marinade Finance, a Solana DeFi protocol, saw its TVL plunge from $254.44 million to $97.88 million between November 7 and November 15. That’s a drop of 62%. But the SOL token count only fell from 7.76 million to 6.94 million, which is only an 11% decline.

Similarly, Raydium, another DeFi trading protocol on Solana, saw a huge drop in TVL. The dollar value of the assets locked into their smart contracts went from $117.38 million to $51.85 million. A decline of 56%. The SOL tokens staked on the platform didn’t change though. This shows that some users still believe that DeFi is a viable alternative to centralized finance.

Ethereum

The story is similar for some of the biggest DeFi dapps built on Ethereum. The difference is that with Ethereum, the size of the cryptocurrency’s market cap and the volumes of money that move through its protocols each day mean big drops have a huge impact on the DeFi industry.

MakerDAO is a multi-billion dollar DeFi protocol that generates Dai, one of the industry’s leading decentralized stablecoins. In the week between November 7 and November 15, MakerDAO’s TVL went from $8.03 billion to $6.8 billion, a drop of $1.23 billion, or 15% of all staked tokens. The TVL in ETH fell by 8%.

Fact: MakerDAO currently accounts for 15.51% of all TVL in DeFi.

Curve is an automated market maker that focuses on finding efficiencies in stablecoin trading. It’s a volatile platform, where risks increase when cryptocurrencies depreciate in value. It’s no surprise that users have taken their assets out of a potentially unstable protocol, as seen by the huge fall in the amount of ETH locked into the dapp’s smart contracts.

The total value of ETH locked into Curve fell from 3.76 million tokens to 3 million tokens in the week after the FTX crisis started, a drop of 20%. The dollar value of that drop was $1.5 billion, from $5.91 billion to $3.72, a 37% decline.

Finally, we can see that the TVL on Convex Finance fell 43% from $3.86 billion to $2.2 billion. That’s a seven-day drop of $1.66 billion. Users took 680,000 ETH out of Convex, which equates to a 28% drop.

The bigger picture

Combined, the drop in TVL from November 7 to November 15 for the five platforms above was $4.61 billion. But similar stories played out across hundreds of smaller platforms, together holding billions of dollars. Weaker cryptocurrency prices and user token withdrawals hit the entire DeFi industry and we’ll have to wait to see how many can survive in the long term. 

Most DeFi platforms remain tight-lipped about how the FTX crisis has affected them. But DappRadar caught up with Sameep Singhania, the co-founder of QuickSwap, to hear what he had to say about the situation.

The situation with FTX is not something that we are seeing for the first time. We have already seen that with LUNA, 3AC and Celcius this year. FTX is just another big reminder for us to focus on not your keys, not your money.

Sameep Singhania, Co-Founder at QuickSwap

Overall, DeFi protocols lost $11.59 billion worth of TVL in the week between November 7 and November 15. That’s a one-week drop of 21%. To put that into context, the annual GDP of Armenia is $11.54 billion.

As a result of FTX’s “bad accounting”, and the subsequent fear and fall in cryptocurrency prices, TVL in DeFi fell by the equivalent value that a nation-state with a population of nearly 2.8 million people produces in one year.

Fortunately, the story was not one of crisis and loss for all blockchains. Some took less damage as the storm swirled swiftly around them.

BNB Chain and Polygon shed less TVL

There were no winners following the FTX collapse. But there were some platforms that lost less. Between November 7 and November 15, TVL on BNB Chain fell by 10%, from $4.88 billion to $4.37 billion. In the same period, the chain’s currency, BNB, decreased in value from $333 to $276, a 17% decline.

While most blockchains’ TVL fell by more than their native cryptocurrencies’ value , BNB Chain’s TVL fell by less. This shows that far from taking their assets out of BNB Chain smart contracts, users increased the amount of BNB they have locked into DeFi platforms built on the network.

This is borne out by the data, which shows that TVL measured by BNB tokens went from 17.78 million to 18.11 million, an increase of 1.8%. The reasons for the blockchain’s strong performance during the turbulence aren’t completely clear yet. But it’s likely that Binance and CZ’s involvement in the FTX drama may have something to do with it.

Polygon holds up well

The Layer-2 network Polygon has also avoided the catastrophic collapse in TVL that affected the likes of Solana and Ethereum. The dollar value TVL dropped $941.48 million on November 7 to $795.27 million on November 15, a drop of just under 16%.

As with BNB Chain, the number of native tokens locked into Polygon went up in the week following November 7. 1.19 billion MATIC was locked into the blockchain at the beginning of the week and seven days later, it was 1.22 billion. This small increase is a good sign for one of the most promising Layer-2 networks in the ecosystem.

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