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By the end of Q2, 2.91 million unique addresses used at least one DeFi protocol, a growth of 65% from Q1. As community driven education, simple user interfaces, appealing yields, and general awareness around DeFi best practices increased throughout the quarter, so too did the number of new addresses, though it must be noted that with wallets like MetaMask, it is easy to make multiple accounts, which means addresses and users are not simply one-to-one. While this is a substantial increase, active DeFi addresses only represent 1.81% of all Ethereum addresses.

Coinbase, the popular cryptocurrency exchange that went public in Q2, identified decentralized exchanges as one of the key threats to their business in their S-1. It’s no wonder: in Q2 2021, DEXs saw the highest ever volume, with May alone witnessing a whopping $173 billion USD in volume, and Q2 total of $343 billion USD. This surpassed Coinbase’s total trading volume of $335 billion in Q1 2021. This is notable because DEXs enable trading only for EVM-compatible assets, whereas 58% of Coinbase’s trading is Bitcoin.

Why is this important? As we have mentioned in other DeFi reports and on the Consensys blog, Ethereum allows for transparency - we can inspect the smart contract code that powers the DEXs and AMMs we interact with and see what those shadowy super coders are doing. The claim of transparency requires a user to have the literacy and tools to actually see what is going on, and our goal is to do that for you here. Providing some literacy around what this code does provides insight into how our decentralized ecosystem works. If you find this section interesting and want to learn more about how to read and write smart contracts, we encourage you to sign up for the Consensys Academy Blockchain Developer Program 2021!

What is a token swap? In this example, we are going to define a token swap as an exchange of fungible token(s) that conform to the ERC-20 token standard. The token or tokens will be moved from one address to another address in exchange for a different ERC-20 token atomically; at the same time. A token swap can occur between two addresses not associated with a smart contract, often serving as a wallet. We refer to these addresses as externally owned addresses (EOAs). A token swap can also occur smart contract addresses, or a combination of EOA and smart contract addresses. An example of such a swap would be Wrapped Bitcoin (WBTC) for DAI. The term swap is also used to apply to an ETH to ERC-20 token exchange, and vice versa. An example of this would be ETH for USDT.

With radical financial innovation and growth comes radical investment returns and opportunity, leading to more and more institutional capital flooding into this space. Just check out our tool Codefi Compare, to see how yields compare with traditional finance. Providing USDC liquidity on the lending protocol Aave currently yields 6.27% APR, yielding 7.22% on average since inception. As protocols chase liquidity, attractive yields like 32.5% for providing sUSD liquidity on Aave are increasingly becoming the norm.

In fact, more than $6 billion dollars' worth of digital assets are now held in just the top 20 DAOs alone. While well-known DeFi projects such as Compound and Uniswap command the largest DAOs, there are thousands of other projects — from media organizations like Bankless to social token communities like Alex Masmej’s, to public funding entities like Gitcoin — that utilize DAOs to coordinate, govern, and manage their financials. There are now more than 190,000 DAO members across crypto.

Every DeFi user dreads when gas reaches 300 Gwei, which happened on May 18th as the price of ETH slid and users rushed to interact with DeFi lending protocols to avoid liquidation, where the total gas costs exceed $100 USD. Since June, the median gas fee has been quite low, hovering around 30 Gwei, or $1.33 for a simple transfer and $12.65 for a Uniswap trade. Why the huge disparity?