Blockchain Value Flow Report – Part II

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A deep dive into the value proposition presented in DeFi

This document is part two of a series of reports that introduce the idea of Value Flow within the blockchain industry. In this series, we analyze the value proposition presented in DeFi, and how the recent surge of NFTs and games has affected it. For this release, we focused on Ethereum’s and BSC’s DeFi landscape, as well as category referent dapps such as OpenSea and Axie Infinity.

In part 1 of this value flow series, we analyzed the top 4 cryptocurrencies by market cap to understand where 67% of the industry’s value tends to go. Three of these cryptos, bitcoin, ether, and the Tether USD stablecoin, have clear implications towards Decentralized Finance (DeFi), where the assets are used to interact with different products. Thus, we will commence the analysis using Defi as the starting point. 

Moreover, DeFi garnered a lot of attention due to optimized products and exotic combinations that result in attractive yields for their users. Individuals have started using DeFi dapps notoriously in the summer of 2020. Thus, we could see a big value flow movement headed in that direction starting in June last year. 

But how has the value flowed from one point to another? Has the value remained in DeFi? We know that Ethereum is still the leader in terms of TVL, but how has the establishment of other blockchains like Solana and Terra as DeFi referents affected the value flow of this category? Or has the explosion of NFTs attracted that value?

Key takeaways

  • In Ethereum DeFi space, the supply of WETH has increased 400% from July 2020, whilst the supply of USDT and DAI is up 1,300% and 500% respectively, confirming a positive trend in regards to the value flow.
  • Although the value flows to some extent from DeFi to NFTs, it appears that both categories are generating value independently; 15.4 million additional WETH have been locked in Ethereum DeFi dapps since July 1st, whilst 1.9 million ETH and WETH ($6.36 billion) have been traded on OpenSea in the same period.
  • As in the NFT space, the value in games appears to be organic. After analyzing the Ronin bridge, we confirm a positive ETH net inflow onto the Ronin sidechain. This further strengthens the case of ETH coming from off-chain sources rather than DeFi itself. 
  • The value locked in BSC’s DeFi appears to be stable during the last 3 months even though the usage trend is shifting towards GameFi dapps.

Table of Contents

Analyzing the DeFi layer

Part 1 of this report focused on how the value flowed into the blockchain industry. We analyzed off-chain indicators such as the reserves in centralized exchanges for the top 4 cryptocurrencies in terms of market cap.  Furthermore, with the support of on-chain metrics, we started to draw some patterns in the internal value flow movement. Since bitcoin, ether, and Tether have clear implications towards DeFi, where the assets are used to interact with different products, we rely entirely on on-chain indicators, initially tracing the value within the most important DeFi protocols.

At the time of writing, the DeFi space has more than $178.55 billion in Total Value Locked (TVL) with $162.79 billion locked in 6 blockchains. From the period that goes from July 23 to September 5, the industry’s TVL grew 75% reaching a peak of $195 billion. In Ethereum, for instance, the TVL grew $68 billion in the last two months, whereas blockchains like Solana and Avalanche saw their respective TVLs increase from tens of millions to consolidated billion figures. 

DeFi Value Flow

However, the main question for this report still remains, does the TVL growth translate into value flowing towards DeFi? Not necessarily. Whilst TVL is one of the most important metrics to assess the current state of Decentralized Finance, it is not a metric to understand value flow movement. The TVL is completely dependent on the underlying asset, thus, providing a false optic from the value perspective. 

For instance, an individual that holds ETH may lock it as collateral in Aave to borrow some USDT or USDC, then, this person goes to Uniswap and performs an arbitrage trade to swap back the stablecoin for ETH, and finally lend the ETH in Curve or Compound. This process may show that the value locked within these dapps is growing, however, it remains the same. 

Value Flow: Etherum DeFi

Ethereum is the leading blockchain when speaking about DeFi. 68% of the industry’s TVL is found in this blockchain ($121.99 billion). Thus, there is a glaring need to fully understand the main activity within this network. This will be the focus of this section.

Also, for the reasons presented above, we will not consider TVL as the main variable to assess the value coming from Ethereum; instead, we will rely on the supply of certain tokens that are locked within DeFi protocols. 

Starting with the number of wrapped ether (WETH), we see an increase in the supply of this token. Whilst the TVL fluctuates depending on the price of ETH, the supply of this underlying asset entails a direct increase of value. From July 2020 and until May 2021, we can observe a steady increase in the supply of WETH locked in Ethereum DeFi dapps. The trend suggests a value increase in this part of the industry. The high number of liquidity pairs involving WETH, the ease to bridge it to other chains, as well as its being the main asset to trade NFTs, paved the way for the upward scenario.

However, a downwards trend is seen from May until July. After that period, the supply started to recover the high numbers seen in past months. Overall, the increasing WETH supply in Ethereum’s Defi landscape would suggest an increase in value.

DeFi Value Flow

To complement this idea, we will turn the attention to stablecoins. As stated in part 1, stablecoins are widely used in DeFi as units to manage risk. Although they produce less attractive yields, stablecoins help lower risks associated with DeFi products such as impermanent loss as well as the obvious price volatility. 

We analyze the supply of the most important stablecoins in Ethereum’s DeFi landscape to observe whether stablecoins are providing more value to DeFi dapps or the other way around. The most traded pairs include stablecoins, mainly USDC, USDT, and DAI.

DeFi Value Flow

In the chart shown below, we are able to see a notable spike in stablecoins supply at the end of Q1. In the case of Tether and DAI, both supply curves have behaved irregularly, mostly matching the supply of WETH during the same timeframe. In the case of USDC, there is a notable decrease in the supply within Ethereum. This is most probably linked to the rise of DeFi in Solana or other blockchains since the supply of USDC overall has increased steadily according to Circle itself. Whilst this may indicate a potential value shift in Ethereum’s DeFi space, it is clear the DeFi, as a whole, is maintaining its value.

For instance, looking at the movement of USDT within Ethereum’s most important DeFi dapps, we are able to observe that the supply of Tether has been fluctuating from dapp to dapp, keeping the value within DeFi.

DeFi Value Flow

Finally, after analyzing separately WETH and the stablecoins, we focus on the native tokens of each DeFi dapp. After further analysis, the supply of the native tokens within Ethereum’s top DeFi dapps like Aave, UNI, or Sushi, appears to be steady since at least Q2. This further strengthens that the value is not flowing out from DeFi in a considerable manner. 

Comparing ETH in DeFi vs OpenSea

Whilst DeFi appears to have a stronghold in the industry’s value, it is true that the value might be flowing to other peer categories, specifically NFTs and games. August saw record volumes in the NFT space. In total $5.2 billion worth of NFTs were traded. As with DeFi, 90% of the NFT trading volume happened in Ethereum. And in Ethereum, the most important marketplace is OpenSea. Thus, we’ll focus on this particular marketplace.

OpenSea allows users to trade NFTs in different currencies. Individuals can trade for their desired pieces on ETH, WETH, USDC, DAI, and Polygon (MATIC). Yet, 99.7% of the trades happen on ETH or its wrapped version. 

DeFi Value Flow

Furthermore, analyzing the number of ETH, WETH and USDC traded on OpenSea during 2021, we are also able to see a clear spike in the number of these assets. 

The increase in the number of ETH or WETH used for NFT purposes indicates a massive usage signal in this space. On the other hand, the downward trend seen in May in DeFi matches the start of the upwards trajectory of ETH in NFTs. However, the massive spike experienced in August does not appear to be coming from anywhere near DeFi as the supply in ETH was already growing in that direction as well. This appears to be true organic growth that matches the constant drop in ETH reserves revised in the previous report.

However, the massive spike experienced in August does not appear to be coming from anywhere, especially from DeFi as the supply in ETH was already growing in that space as well. This appears to be true organic growth that matches the constant drop in ETH reserves revised in the previous report. 

Furthermore, looking at the usage trends we identify an interesting pattern. Towards the end of May, the number of transactions interacting with DeFi dapps decreased suddenly, whilst the transactions involving games and NFT dapps increased substantially. Even though the value from the token perspective does not appear to be altered, it is clear that the focus shifted to other space, in this case flowing from DeFi to NFTs and games.

Although the value to some extent flows from DeFi to NFTs, it appears that both categories are generating value independently. After reviewing in more detail the ETH supply in OpenSea, it seems that the value generated from NFTs is mostly organic. The supply of the most used token does not appear to suffer any major downside trend in DeFi, whilst the reserves of the asset in reserves are decreasing, signaling a higher use of NFTs. The value proposition that NFTs signal may hint at a change in the investment perspective of NFTs rather than a value transfer from one category to another. Where investors are willing to purchase NFTs for their stored ETH.

All in all, it appears that the value in DeFi is growing constantly, whilst NFTs were able to generate a major value flow in August. Next, we’ll revisit another category that has been generating a good amount of value, games. 

Axie Infinity

Similar to what happened with NFTs, blockchain-based games have enjoyed a good amount of success as of late. The usage in the blockchain industry is being driven by this category, mostly in part due to the play-to-earn (P2E) movement. To dive deeper into the games category, we’ll focus on Axie Infinity. Not only due to the fact that, since the move to the Ronin sidechain in late April, it has spearheaded the P2E movement, but also because of its tight relation with Ethereum. 

All Axie Infinity tokens, either ERC 20 or ERC 721, are hosted on the Ronin sidechain. Therefore, to play the game, ERC20 tokens must be transferred or bridged to Ronin at some point. After analyzing the ETH net flows in the Ronin bridge, we are able to see a clear transfer of value into the ecosystem.

DeFi Value Flow

The positive net inflows indicate that the amount of ETH being wrapped into Ronin surpasses the value flowing outside of the sidechain. Thus, the value is concentrated in this network. This hardly comes as a surprise. Axie Infinity is the most played game in the entire industry with more than 1.5 million daily users and has been generating more monthly revenue than entire blockchains since June. 

Analyzing Axie’s metrics simply proves the value proposition generated by the dapp. Since May, Axie has generated over $2.15 billion in trading volume in more than 5.1 million transactions involving over 9.3 million traders. 

As in the NFT space, the value in games appears to be organic. The trend repeats across categories where Ethereum is the leader, or at least, the main point of entry. To clarify the situation further, it is worth reviewing another leading blockchain, BSC.

Value Flow: BSC DeFi

BSC is the second blockchain in terms of TVL. The Binance branded chain currently holds $22 billion locked in value. In addition, it is home to the most used DeFi dapp across all networks, PancakeSwap. Overall, BSC provides another good option for assessing the value within the industry. 

The main asset used for DeFi purposes in the BSC network is the wrapped version of BNB (WBNB). After analyzing the supply of this asset in the ecosystem, there is a variable increase from the start of 2021 until mid-May. As of today, the supply has decreased by 33% approximately from the levels reached in May. 

A similar trend is observed when factoring in the stablecoins as variables. In mid-May, probably helped by the Venus liquidation event, a sudden drop in the supply of the most important stable assets in BSC is quite clear. Overall, the stablecoin supply in the network grows from January until May 2021, when a sudden collapse is visible. 

To complete the analysis of BSC’s DeFi state, we must separately consider CAKE, the native coin of PancakeSwap, one of the two most used dapps in the industry. At the time of writing, PancakeSwap’s TVL sits around $9.22 billion or 42% of the network’s TVL. Observing the supply of CAKE growing, strongly suggests that BSC’s DeFi landscape is still holding most of its value. Similar to what happens in Ethereum with WETH.

It is worth noting that three of the ten most traded pairs within PancakeSwap include a game-based token (MBOX, BMON, and WANA). Thus, reinforcing the GameFi value proposition in BSC. Whilst the GameFi movement in the Binance branded network is robust, the value coming from BSC’s DeFi cannot be overlooked.

Moreover, as in Ethereum, the usage is shifting from DeFi to other categories. In BSC’s case, the GameFi movement has attracted thousands of users into game dapps. We clearly identify a decrease in the transaction count connected to DeFi dapps in May, which is followed by the surging trend in the other two categories. In the case of BSC, it is mostly dominated by games.

This shift to games is strengthened by analyzing the new dapps launched in recent months. NFT and games dapps have been rising since June. On the other hand, there is a clear decrease in the launch of DeFi dapps. In regards to the value flow, this certainly does not affect the outcome, yet it is a trend to keep in mind to understand the industry value proposition and latest trends. 

Although the order of magnitude between the volumes managed in DeFi, to those transacted in games is still abysmal, the usage trend might signal a shift in the preference of users from DeFi to games. Furthermore, whilst in Ethereum there is no clear evidence that the value is shifting from category to category, it appears that in BSC the story might be different. 


The second part of the value flow report dives deeper into DeFi with the aim of complementing the first piece. Overall, DeFi has become one of the most used gateways for interacting with other categories such as NFTs and Games, generating value in the process. 

In the case of Ethereum, the leading blockchain in terms of TVL, we observe that, although the value of DeFi has been somehow hindered by the explosion of NFT and game categories, it still concentrates high-value propositions confirmed by the rising supply of WETH and also important stablecoins like USDT and DAI within the network’s DeFi dapps. 

Moreover, the value generated by NFTs in Ethereum, measured by OpenSea, seems organic. The value proposition recently observed, especially in NFTs, may hint at a shift in the investment paradigm, where investors are willing to purchase NFTs with ETH that was probably originally considered as a better unit of value store.

Something similar happens in blockchains games, taking Axie as the referent. The recent value generated by this category is so immense, that it is questionable to think it may be flowing entirely from DeFi. It is logical to assume that the value is organic as well. Again, we are in front of a value generator rather than a value transfer from one category to another.

To gain another perspective, we analyzed the state of the Binance Smart Chain. The value proposition in the DeFi space is certainly not as strong as in Ethereum, yet it has one of the most important DeFi dapps. In addition, the supply of its DeFi relevant assets is not completely detrimental. However, the GameFi trend in BSC is clear. It seems like the value in BSC slightly shifted from DeFi to games, although the value is still flowing within BSC’s DeFi dapps.

All in all, looking at some of these metrics we can have a clearer picture of the value proposition currently presented in the blockchain industry. Even though the recent trends have lent towards NFTs and games, DeFi is still generating value. It is truly positive to see that the NFTs in Ethereum and game dapps like Axie are generating true organic value in the industry. It will be interesting to monitor whether the value proposition changes in upcoming months once the NFT space is more consolidated and some of the hyped games are ready to launch. 

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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 ETH, BTC, ADA, MATIC, SOL, AVAX, DOT, KSM, XTZ, LUNA, UNI, SUSHI, xSUSHI, ORN, AKRO, KNCL, EGLD, BAT, CRO, SHIB, LINK, BAND, BNB, CAKE, OOE, DNXC, DPET, TVK, POLS, POLK, RAMP, XED, AXS, SPS and owns collections like NBA Top Shot, CyberKongz VX, Ghxsts, Cool Cats, RSoP, SupDucks, Legendz, Punks Comic, Pixel Vault DAO, Avastars, Dogs Unchained, VeVe NFTs, and 1/1 art pieces.

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