Crypto sell-off continued in June and marked one of the worst monthly performances since the last bear market in 2011. A combination of challenging macro and micro factors contributed to a crypto credit crisis as fears of a prolonged bear market (crypto winter) continued to spread across the crypto ecosystem. With US inflation projected to remain elevated and recession possibly on the horizon, the “risk-off” environment has triggered companies such as Coinbase to lay off nearly 18% of its workforce. Liquidity issues have brought Celsius, one of the largest crypto lenders, into the spotlight as it paused withdrawals in attempts to stave off bankruptcy. While, Three Arrows Capital, a major crypto hedge fund, had to file for bankruptcy after sustained losses.
For the first half of 2022, decentralized finance (DeFi) underperformed relative to BTC (-57%) and ETH (-70%) and in absolute terms (-74%). With the exception of March, every month posted double digit negative returns.
As of June, the DeFi market cap (top 100 DeFi coins by Market Capitalization) dropped 31% to $36 billion from prior month.
The average 20-day growth rate for DeFi wallets declined and remained flat for the month. In comparison, the growth rate was around 4% last November when Ethereum’s price reached a peak around ~$4,700. The total number of DeFi wallets continues to hover around 4.8M today. Although users may have multiple wallets or addresses, this data point serves as a worthy pulse on the overall state of the DeFi ecosystem.
The total value locked (TVL) in smart contracts across top blockchain platforms dropped 36% to $60B and no chains were immune to the sell off as the TVL across all the top chains posted negative change month-on-month (MoM). Ethereum (77%) and Binance (10%) continue to represent top market share of TVL across the top blockchain platforms since Terra’s implosion in May.
Total monthly revenue generated by popular DeFi protocols continued to decline (-18.4%) as usage slowed and was $118M as of June. Uniswap was the only protocol that saw positive growth (7.8%) in revenue for the month which represents 80% of all revenue and the highest for the protocol this year. Total revenue generated for users and token holders have slowed and remains flat at around $4.6B.
Activity amongst top decentralized lending protocols declined significantly and as a result, yields have fallen close to zero. The total value of deposits for the three largest lending protocols (Aave, Compound and Maker) at the end of June was $11.4B (-47% MoM) while the total value of borrowing was $8.4B (-16% MoM).
Despite negative crypto performance, DEX activity has been relatively healthy and averaging $110B in volume for the first half of this year. This is higher in comparison to last year for the month and the same time period where the average volume was $95B.
If history tells us anything, it is worth keeping a pulse on the fear and greed index. The index shown below supports the thesis that a bottom is close and may suggest a good time for one to be opportunistic especially when further force selling may occur due to liquidation crisis happening in the crypto ecosystem. Extreme fear (represented by zero) can be a sign that investors are too worried which could be a buying opportunity and extreme greed (represented by 100) can be a sign investors are getting too greedy and the market is due for a correction.
June has been a rough month, especially for those who have not experienced a bear market or crypto winter. As mentioned in prior months, crypto continues to be highly correlated with traditional markets therefore market factors such as inflation and economic growth indicators should continued to be monitored in addition to how the Fed reacts to such data. However, when looking specifically at the long-term prospects of DeFi as an asset class, tokens may be repriced considerably. In many cases tokens prices are reflecting weaker fundamentals as reflected in the charts above while in some cases we are seeing material disconnects in token fundamentals and price.
Cryptofunds, market makers, and trading desks can interact with these DeFi protocols with MetaMask Institutional
MetaMask Institutional offers unrivalled access to the DeFi ecosystem without compromising on institution-required security, operational efficiency, or compliance. We enable funds to trade, stake, borrow, lend, invest, and interact with over 17,000 DeFi protocols and applications.
Found this research useful? Connect with the Consensys Cryptoeconomic Research team at [email protected]
Disclaimer: Consensys Software Inc. is not a registered or licensed advisor or broker. This report is for general informational purposes only. It does not constitute or contain any individual investment advice and is made without any regard to the recipient’s objectives, financial situation, or means. It is not an offer to buy or sell, or a solicitation of any offer to buy, any token or other investment, nor is it intended to be used for marketing purposes to anyone in any jurisdiction. Consensys does not intend for any person or entity to rely on any facts, opinions, or ideas, and any financial or economic commentary expressed in this report may not be relied upon. Consensys makes no representations as to the accuracy, completeness, or timeliness of the information or opinions in this report and, along with its employees, does not assume any responsibility for any loss to any person or entity that may result from any act or omission based upon this report. This report is subject to correction, completion, and amendment without notice; however, Consensys has no obligation to do so.