GlassNode: Cryptography industry activity slows, DEFI continues to push forward

One year after GlassNode by Defi Summer, how does Defi stand?

Originally written by Luke Posey& Glassnode analyst

Translated by: Iris, Encryption Valley

Ethereum and Defi Token prices continue to show weakness as activity on the Defi mainchain comes to a standstill. Gas prices have reached their lowest point since the DeFi summer began in 2020. As EIP-1559 knocks on Ethereum's door, tokens will decline as usage increases, causing many to reconsider the extent of ETH deflation.

In the bearish sentiment, liquidity on the chain remains strong as the DEFI core participants seek the highest yield on stablecoins, accumulate governance tokens and continue to hold spot ETH. The long-term holders of ETH seem still determined. In addition, more products are coming to market as dozens of VC-funded projects reach the end of their three - to 12-month development cycles.

Activity across the industry has slowed

Activity that used to grow exponentially is now stagnating as participants are largely idle during the sideways session. We can see a brief burst of activity during periods of price volatility, but as prices stabilize, it slows quickly. The price decline of most mainstream governance tokens continued to deepen.

Since 2020, Gas prices have recovered to DEFI's early summer levels, so much so that traders willing to wait patiently can pay single-digit GWEI Gas fees even out of working hours.

Dex volume dominated gas consumption throughout the bull market in 2021. Despite the decline in transactions across Dex, Uniswap is still the champion in block space consumption. Despite the decline, monthly transaction volume of Dex was still up more than 5,600% year on year. Daily trading volume has stabilized at about $2 billion, spiking when prices are volatile and leveling off the rest of the time.

User growth (address growth) remained relatively stable, from 18 percent in April to 25 percent in May, slowing slightly month-on-month. In June, user growth is expected to reach about 12 percent. High user growth may be a bullish indicator for holders as it is a key indicator for adoption and to identify if there is a marginal Token buyer. While total user growth remains strong, the percentage growth curve is flattening.

As demand for on-chain leverage has slowed, yields in the mainstream lending market have begun to fall. In the process of falling yields, low volatility rates appear. These low rates are not all bad. They give stablecoin miners and short sellers access to cheap borrowing funds, almost unheard of during a bull market. As long as liquidity remains strong and demand for borrowing wanes, yields in borrowing markets will remain low.

This reflects an earlier study in theWhat is the status of DEFI so far?The analysis discusses the relationship between the utilization rate and the rate of return.

Data from Parsec Finance

Stablecoin transfers have come to the end of a period of prolonged demand and volume growth. USDT transfers have historically been among Ethereum's top 10 gas consumption activities, as it is widely used by holders of all sizes to move assets between exchanges without the risk of price fluctuations.

Defi advances

Many predict that if a bear market comes, liquidity will dry up broadly and risk-free yields will tighten. So far, liquidity has remained strong during the correction as prices have exceeded total liquidity.

With unrealized net profit and loss indicators moving into the surrender zone, short-term ETH holders (at lt; Hold their tokens for 155 days) are now watching their unrealized gains evaporate. This shows how holders of recent ETH purchases see paper gains turn into paper losses. After unrealized gains of almost 46 per cent of market capitalisation, short-term holders now hold paper losses totalling minus 25 per cent of market capitalisation.

Given the magnitude of this SST-NUPL (unrealized net profit and loss for short term holders) decline, we can conclude that a significant amount of ETH purchased during the rise from $2200 to ATH is now under water (at a loss). The risk is that these investors may liquidate when prices rise back to their cost price (sTH-NUPL =0). Conversely, if the [bullish] belief remains strong, then they are likely to hold on and stay the same regardless of what happens next.

Long-term holders (tokens held for more than 155 days) remain profitable, holding paper gains equivalent to about 80% of market value. LTH-NUPL remains flat as most long-term holders are still profitable but will see unrealized gains fall if the market continues to fall. Watch for a rally in January 2018, followed by an eventual dip, as holders get tired of watching their paper gains disappear.

For now, long-term holders are still profitable, underscoring how impressive the uptrend in 2020/2021 will be for ETH holders. If the market turns down, the faith of these holders will be tested.

Unlike previous periods of low prices, many of these long-term holders can now deploy their assets in DEFI. ETH is widely held in loan agreements such as AVE and Compound, where it currently accounts for more than $4 billion in outstanding loans.

These agreements allow them to borrow stablecoins with their deposited ETH and then use the stablecoins to earn attractive risk-averse returns or speculate on tokens. Holders can accumulate governance tokens, increase their stablecoin balances, or buy in aggressively, while maintaining their exposure to ETH as long-term lenders. AVE and Compound deposits and borrowing remain strong.

The data comes from Dune Analytics

As we move into further volatility, it will be interesting to see where the liquidation levels of large borrowers are. Many of these are automatic positions that close when health factors reach dangerous levels. As prices reach liquidation levels, additional collateral, liquidating positions or tolerating liquidation are on the borrower's menu. For example, the figure below is a view of the clearing level of ETH lenders, broken down by clearing price level; Note the large Maker position at $1500 and the large Compound position at $1000.

Data from Parsec Finance

It will also be interesting to see which assets are clearing at the highest rate, as in the case of PNK this week.

Data from Parsec Finance

Stablecoin miners' profits have remained healthy during the downturn. In the Curve Finance ecosystem, competition begins as Yearn, Convex Finance, and Stake DAO fight for deposit dominance. The veCRV owned by the Curve protocol gives us an idea of the number of tokens purchased and locked by each protocol to increase its user rewards.

Yields on all three deals remain strong, and each offers a pool of capital with superior returns. Condomion has taken the lead in many of the stablecoin pools, while Yearn remains in the lead in others. The Stakedao currently leads only on the euro, offering the highest yield for the leading euro stablecoin. Stablecoin yields of 10-30% or more can be found on all three platforms.

conclusion

With most of the governance tokens losing more than 60% of their ATH value, the growth of new and existing activity across the DEFI space was hit, and many participants entered a risk-off mindset. While on-chain activity is no longer increasing month-on-month, the year-over-year growth is still huge.

DEFI participants are now seeking risk-averse yield farming opportunities and higher quality assets to best weather downtrend volatility. The mobility of the entire ecosystem remains largely healthy, and long-term ETH holders remain determined, with many of their tokens still sitting around.

The original link

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia