In order to look forward, we should understand the past. I put together a quick 80/20 of what happened in DeFi in Quarter 1. This is the first iteration of it, and I can't wait to do a more comprehensive report for next quarter.
Today I'll be covering:
- The DeFi Numbers. The indicators and metrics.
- DeFi Stories. Some of the biggest stories and narratives surrounding Q1
- Are you a Web 3 company that's hiring? Check out my Talent Collective
Let's level up!
The Numbers in Quarter 1
First, let's start with a leading indicator. DeFi only grows if the total inflow increases into the Crypto space. You can measure this by looking at Cryptocurrency exchange volumes.
We hit a peak last year (Around the time Elon / Dogecoin mania) and have been trending downwards ever since.
Let's look at the Total Value Locked.
January 1 2022: $275B
March 30 2022: $251B
Difference: -24B (-8.7%)
There were huge dips in January, and it has been slowly climbing up since.
Here's the monthly DeFi revenue of some of the top Protocols. It has been trending down since November.
Total Users of DeFi
(Users = unique addresses. Since a user can have multiple addresses the numbers below are overestimates. Source: @richardchen39)
Jan 1 2022: 4.19m
March 30 2022: 4.56m
Difference: 370,000 (+8.8%)
It's pretty obvious what has happened in the past few months.
(1) Russia and Ukraine. Lots of fear and uncertainty around this situation. When there's so much uncertainty, people become risk averse.
(2) The U.S. Federal Governmant Raises Interest Rates. With rampant inflation happening, the government wants to do a series of interest rate highs. When it's more expensive to borrow money, then there's less disposable income to invest in Crypto.
The numbers in DeFi don't look too great right now, and a lot of it is due to the Macro environment. The DeFi space won't grow until there's more $ flowing into the space overall.
Until then, DeFi tokenomics seems to focus around trying to incentivize people to lock their funds.
The DeFi Stories of Layer 1
Let's look at the stories that shaped DeFi.
Ethereum Layer 2's are Heating Up
Ethereum L2's are grabbing more TVL with no signs of stopping soon
- Ethereum has partnered up with LoopRing for their NFT Marketplace
- Metis Dao Ecosystem is growing
- The market leader Arbitrum is gaining more adoption.
You should keep an eye out on The Merge, and and Starkware (Layer 2 ZK-rollups)
The Terra Ecosystem
Terra is the story of Quarter 1.
As the market started tanking, everyone fled to stablecoins and Anchor Protocol.
The foundation is buying more and more Bitcoin in order to defend its peg.
Luna is becoming quite controversial. Some people are claiming that it's a ponzi and not sustainable.
Check out this debate on the viability of $UST from Bankless.
• The Death of Frog Nation. Daniele Sesta and Frog Nation was the hottest brand in DeFi coming into Q1. They were riding high off the success of $spell, $ice, and $wonderland. The team engineered a takeover of the SushiSwap DEX.
Everything crashed when the co-founder of Wonderland, Sifu, was doxxed. He's Michael Patryn, a serial scammer and one of the co-founders of QuadrigaCX.
Sushi is on its own. Spell / Ice's prices have crashed. Dani is keeping his head down and trying to resurrect Wonderland. Sifu launched a protocol called Sifu Vision.
• Andre Cronje Leaves DeFi. Andre and his team have left DeFi. This caused a lot of TVL to leave the FTM system. SOLIDLY was easily the most hyped project of this quarter and it didn't live up to expectations.
• Cross Chain Exploits. Ronin Bridge was exploited for $600m (Axies Infinity), and Wormhole was exploited for $325 (Solana). Vitalik has warned that cross-chain bridges are more vulnerable than we realize. Interoperability is becoming more important (the ability for chains to easily exchange data)
• Cosmos and the IBC. With all the cross-chain bridge exploits, more attention is turning towards ATOM. COSMOS is a layer 0. All the L1s built on Cosmos can easily communicate with each other.
• GameFi rising. We're early when it comes to GameFI. DFK launched CrystalVale without too many hiccups. Games on my radar: Illuvium, Aurory, DCAU, Crypto Raiders, Neo Tokyo, Treeverse, etc. It's an area I'll be exploring more.
• Rebasing Projects. There was a new rebasing project launching every day in December. The hype surrounding rebasing projects has died
Some projects are still going like the OG OlympusDao. Wonderland allowed some of their holders to cash out a few weeks ago via RageQuit, and they're trying to get back on course. Redacted Cartel (Butterfly) is making moves with a Terra Partnership. The rest of the rebasing DAOS are kinda dead.
• Cronos is heating up. Crypto.com chain's TVL keeps climbing up. It's easy to get caught in our DeFi bubbles. Remember, the inflows come from normies investing. And Crypto.com is gaining more and more mindshare from Crypto newbies.
• Farming as a Service is a new sector that wants to bring degen yield farming to the masses. They kinda launched in the middle of the bear market. It'll be interesting to see what kind of returns they can generate once we're in bull mode.
Names to watch out for: Reimagined Finance, Scary Chain Capital, Alpha Capital, Expo Capital, etc.
• Nodes. I've gotten a lot of questions about node projects. I'm not a fan of them because I don't see how they're sustainable. They became popular because they promised passive income. But once I researched their model, it seemed quite Ponzi'ish. Strong is the largest one, and its value has been plummeting
Alright, that's it. That should give a high level picture of what happened in the past few months.
Even though some of the numbers are down, I'm bullish long term for DeFi.
Once again, thanks to DeFi Penguin for helping me gather the data.