State of DEFI: Price Movements, Latest Trends, and Stats

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Interest in DEFI peaked in 2021. In the first quarter of 2022, NFT-based categories became popular, and DEFI remained in the background. Since the year's second quarter, adverse developments in the crypto market have occupied the agenda. Terra Luna crashed first. Then we witnessed the bankruptcy of crypto financial institutions such as Three Arrows Capital, Celsius Network, and Voyager Digital. And with the collapse of the FTX exchange, pessimism about the crypto market reached its peak.

We know that the core value proposition of crypto is decentralization. Putting aside Terra Luna, which collapsed due to the outrageous risks taken, the centralized companies caused problems. The algorithmic coin DAI did not lose its peg when Terra Luna crashed, and Ethereum's price dropped to one-third. Hive's stablecoin HBD has always remained stable, even as Hive's price has dropped to one-tenth of its peak. While FTX, the second-largest centralized exchange, sank, decentralized exchanges continued uneventfully.

2022 has been a year when DEFI has come of age. However, this situation was not reflected in the prices due to the bear market. So, has the situation changed in 2023?

Price Movements

DEFIX, the DEFI index, reflects the prices of cryptocurrencies of major DEFI applications in line with specific weights. Therefore, we can get an idea about the price development of DEFI by examining the DEFIX chart.

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In the first half of 2021, prices increased five times. In the following 1.5 years, we see that the prices are in a downward trend. In the first days of this year, prices went above the trend line. The chart also shows that the prices have followed a horizontal course in the last eight months. The collapse of FTX had less impact on DEFI cryptocurrencies.

Now that no one is talking about DEFI, it might be a good time to buy. We can't say that the bear market is over yet, though. For now, purchases are concentrated on Bitcoin and Ethereum. The prices of DEFI coins could skyrocket if a new bull market appears on the horizon.

Latest Trends

After the bull market of 2020-2021, rapid depreciation occurred in DEFI tokens. This situation happens as a result of breaking positive price loops. Highly inflationary tokens quickly lose value when the flow of funds is interrupted. Measures such as using the revenues created on the DEFI platform to burn coins, diversifying tokens, and reducing the promised returns have been implemented to prevent this situation. Diversification of tokens provides new money inflow into the system, but after a while, the newly created token also reaches a certain saturation point. In essence, those who enter the system early gain an advantage. On the other hand, DEFI applications generate value beyond the time value of money. They meet real needs such as DEFI swaps, lending, and insurance.

Play2earn games are essentially DEFI applications. They have more sophisticated financial setups compared to traditional DEFI apps. Advanced play2earn games like Splinterlands must have a digital asset portfolio of NFTs and various tokens. Decentralized exchanges (DEXs) and marketplaces where these digital assets are traded are essential for these ecosystems.

Popular DEFI categories change almost every quarter. In the first quarter of 2021, DEXs were the favorite of investors. Afterward, yield farming applications received investor attention for a while. In the following period, we witnessed the rise of algorithmic stablecoins. Lending applications, on the other hand, have appealed to a specific user group in every period since 2020. Last year, Ethereum's move to PoS sparked a surge of interest in liquid staking. Nowadays, the DEFI market is in place. According to the total value locked value, the protocols in the top ten operate in various categories. On the other hand, after the collapse of FTX, we witnessed the growth of the derivatives category.

Maker DAO's investment in US treasury papers was one of the important events of the last period. The creation of derivatives of traditional financial instruments on blockchains must be a development that keeps the actors of traditional finance from sleeping.

Recently, users have used Ethereum scaling solutions such as Optimism and Arbitrum more frequently. Optimism's airdrop to early users was instrumental in generating this interest. Nowadays, crypto investors are eagerly awaiting the airdrop for Arbitrum's coin.

DEFI Stats

We can access detailed statistics on the DEFI market through the Defillama site. Viewing the market's direction is possible by periodically browsing this site.

According to the total value locked value, Ethereum still holds more than half of the market. Tron is in second place with an 11% share, and BSC is in third place with 10%. Arbitrum is fourth with 3.5%. Polygon's percentage is down to 2.5%. Interestingly, Avalanche and Fantom's shares fell to 2% and 1%, respectively. Ethereum, the creator of the DEFI concept, is always the leader. The second and third places change frequently.

The chart below shows the evolution of the DEFI total value locked since 2019. In 2022, there is a parallel course with crypto prices.

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Deflllama addresses DEFI applications in 32 categories. DEXs top the list with 692 apps. There are 378 yield farming applications in the second place and lending applications with 210 in the third place.

Conclusion

The DEFI total TVL graphic above reminded me of research firm Gartner's technology hype cycle.

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By Jeremykemp at English Wikipedia, CC BY-SA 3.0

We may be in the trough of the disillusionment stage right now. Even the slope of illumination may have started. I believe a similar situation exists for the crypto market as a whole. If a rally begins, DEFI tokens will rise much faster than Bitcoin and Ethereum.

Thank you for reading.

Cover Image Source: Midjourney App

Posted Using LeoFinance Beta



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