May was another volatile month for crypto as several events further shook investor’s confidence on the backdrop of continued geopolitical, monetary and fiscal headwinds.  Terra’s US dollar stablecoin de-pegged and eventually collapsed, erasing $60 billion in value, while the Ethereum beacon chain experienced a potential security risk (reorganization) which the success of the upcoming Ethereum Merge is dependent upon.

Year-to-date performance for DeFi continues to underperform crypto-beta (BTC & ETH) and is down 63%. ETH and BTC performed relatively better at -46% and -33%.

As of May, the DeFi market cap (top 100 DeFi coins by Market Capitalization) nearly dropped 50% to $52 billion since April month-end. 

The average 20-day growth rate for DeFi wallets continues to sit at around 1% as of May month-end. In comparison, the growth rate was around 4% last November when Ethereum’s price reached a peak around ~$4,700. Cumulatively, the total number of DeFi wallets sit at around 4.8 million today.  Although users may have multiple wallets or addresses, this data point may serve as a worthy pulse on the overall growth of the DeFi ecosystem.

The total value locked (TVL) in smart contracts across top blockchain platforms was $94 billion as of May month-end, down a whopping 47% MoM.  The value locked across all the top chains were negatively impacted.  Also, as Terra dramatically drops out of the race, Ethereum (77%) and Binance (10%) now represent more share of TVL across the top blockchain platforms.  Excluding Terra, the largest detractor in total value locked continues to be Fantom at -62% followed by Avalanche at -58% and the smallest detractor was Binance at -27% followed by Polygon at -28%.  Despite TVL being down 36% on Ethereum, it continues to be the dominant smart platform.

Monthly revenue generated by popular DeFi protocols continued to decline (-9.4%) as usage slowed across major DeFi protocols.  The total monthly revenue as of May month-end was $144 million.  Meanwhile, cumulative DeFi revenue has remained flat at around $4.5 billion. Largest decline in revenue was seen in Compound (-75%) and Aave (-48%) while a positive spike in revenue was seen in Quickswap (+107%).

Activity amongst top decentralized lending protocols declined significantly in activity. The total value of deposits for the three largest lending protocols (Aave, Compound and Maker) at the end of May was $21.3 billion (-29% MoM) while the total value of borrowing was $9.9 billion (-40% MoM).

Trade volume across DEXs have started to pick up for the month of May with total trade volume jumping 42% to $131 billion.

Broadly, crypto has been highly correlated with traditional markets despite some brief decoupling happening in recent weeks.  Therefore, as crypto is still heavily dependent on macro narratives, volatility is foreseen to continue into the near future as uncertainty remains in the challenging market. 

However, when looking specifically at the long-term prospects of DeFi as an asset class, tokens may have been 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. 

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