glassnode | DeFi Industry Status Report: How to Deal with the Downtrend

glassnode | DeFi Downtrend Report

Glassnode analyst Alice Kohn has released a report on the current state of the DeFi industry, focusing on the top eight DeFi project tokens by market capitalization. The report explores the driving factors behind the continued poor performance of DeFi tokens and shows that there is limited upward potential in a bullish market, while there is significant downward potential in a bearish market.

Since the beginning of 2021, the DeFi market has experienced a continuous decline. The total market capitalization of the top eight DeFi tokens has dropped from a peak of $45.5 billion (May 2021) to the current $6.2 billion (-86.4%); since the de-leveraging in 2022, the valuation of DeFi tokens often changes with the TVL of the protocol, indicating that investor confidence may be related to the performance of the underlying protocol; when dividing DeFi into different sub-industries, we can see that DEX has the largest market share, currently accounting for 63.3% of the total DeFi market value. The money market ranks second, accounting for 27.3%. Synthetic assets only occupy a marginal 9.4%.

In the past two years, two new fields have emerged in the Ethereum ecosystem: GameFi and Staking, both of which have sparked varying degrees of investor interest. GameFi almost surpassed DeFi in mid-2022. Since the beginning of 2023, the Staking industry (represented by LSD tokens) has been on the rise, and the total market value has exploded, increasing from $505 million in January to over $3.2 billion in April. If these sectors are considered part of the Ethereum economy, against the backdrop of EIP1559 burning, some of their value can be expected to be reflected in the valuation of ETH. When comparing the market value of these industries with ETH, DeFi only accounts for 3.04% of the size of Ethereum itself, while GameFi and LSD tokens account for 1.2% and 1.6%, respectively.

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The latest governance proposals from MakerDAO and Uniswap indicate that the focus of the DeFi protocol community has shifted from product development to creating value for stakeholders in the ecosystem. This may be due to the poor performance of DeFi tokens in the past two years or the emergence of native ETH staking rewards. In the Ethereum landscape, native ETH tokens may actually be value predators. Therefore, we may soon see discussions, debates, and designs for new rounds of token revenue models in the DeFi field. The battle to reignite people’s interest in DeFi tokens may be underway, but considering the new barriers set by ETH tokens themselves, this is unlikely to be an easy battle.

Reference: https://insights.glassnode.com/defi-downtrend/

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