2023-8-25 15:07 |
A lot has been made of the threadbare nature of cryptocurrency trading on centralised exchanges recently. And understandably so, as trading has fallen off a cliff.
Last year saw numerous scandals, highlighted by the Terra death spiral and FTX shock. This year has brought a severe regulatory crackdown, and while risk assets have rebounded, yields in trad-fi have continued to rise, offering investors viable alternatives. The below chart from The Block displays the drop-off well.
But while this dwindling volume on centralised exchanges has drawn eyeballs, DeFi has also been leaking. First, the most obvious way to assess this is by looking at the total value locked (TVL) across the DeFi ecosystem. At its peak in November 2021, there was $178 billion TVL in DeFi. Today, there is $38 billion.
While these dollar figures are obviously amplified by the stark drop in token prices since then, if we assess the TVL on the Ethereum blockchain in terms of Ether, we also see a precipitous drop (Ethereum currently has 59% of all TVL within DeFi). Hence, even when stripping out exchange rate effects, capital has flooded out of the space.
Perhaps a better way to illustrate this is by assessing stablecoin supplies across the market. For over a year now, they have been in a state of constant decline. The below chart from Glassnode aggregates USDT, USDC, BUSD and DAI, and tracks the 30-day change of the supply. At the bottom of the chart, we can see the positive inflows signified in green flipping to red last April, and staying like that ever since.
The dwindling liquidity in DeFi has also had an effect on volatility. Across the entire market, volatility has careened down to all-time lows in recent months, through a combination of falling interest, volumes and liquidity, with suddenly-stout yields in trad-fi further pulling capital away.
DeFi is no exception, and interestingly, the volatility gap between Ethereum and Bitcoin is now non-existent. Historically, Ethereum has traded with more volatility than its older cousin, but the delta is now minimal/gone.
On August 12th, according to DeFiLlama, DeFi racked up only $1 billion of transaction volume – an eight month low. While there has been some pickup in volatility since then (albeit now back to previous levels), the fact that transaction volume is still as low as the start of the year, despite the sharp rise in token prices since then, sums up how quiet the space has become.
The post DeFi roundup: Liquidity and volume continue to thin appeared first on Invezz.
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