August was a difficult month for the decentralized finance (DeFi) ecosystem, which is frequently praised for its quick invention and lively activity. DeFi’s performance over this time period is thoroughly described in a recent research from investment manager VanEck, providing important insights into the condition of this dynamic industry.
DeFi Volume on the Decline
DeFi enthusiasts and investors saw on-chain economic activity wane in August. According to VanEck’s analysis, exchange volume across DeFi protocols dropped to $52.8 billion during this period, marking a 15.5% decrease from July.
VanEck’s MarketVector Decentralized Finance Leaders Index (MVDFLE) served as the analytical compass for tracking the performance of prominent tokens within DeFi protocols. These tokens included the likes of Uniswap, Lido DAO, Maker, Aave, THORchain, and Curve DAO (CRV).
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It’s noteworthy that during August, the DeFi Index underperformed Bitcoin and Ether, slipping by 21% over the month. This dip was further exacerbated by the negative performance of the UNI token, which experienced a 33.5% downturn as investors took the opportunity to capitalize on July’s gains.
Related: DeFi Protocols Opyn, ZeroEx, and Deridex Ordered to Pay Fines by CFTC
DeFi Metrics
Another crucial metric within the DeFi landscape is the Total Value Locked (TVL). In August, this metric underwent an 8% decline, moving from $40.8 billion to $37.5 billion. Interestingly, this decline slightly outperformed Ethereum, which experienced a 10% slump during the same period.
Despite the less-than-rosy performance of DeFi tokens in August, the sector did not remain stagnant. Positive developments continued to unfold throughout the month. Notable among these was the dismissal of a class action lawsuit against Uniswap Labs and the stablecoin growth witnessed by Maker and Curve Finance.
In particular, Curve Finance’s stablecoin crvUSD experienced a significant surge in August. It reached a new all-time high, with $114 million borrowed against it. This stablecoin, pegged to the U.S. dollar and relying on a collateralized-debt-position (CDP) model, found favor among users.
As VanEck’s report highlights:
“The growth of crvUSD has allowed it to become a significant contributor of revenue for the platform, with crvUSD fees exceeding fees collected from all non-mainnet liquidity pools in 3 of the 4 last weeks.”
However, CRV, Curve Finance’s governance token, did not exhibit a robust recovery. It faced a 24% price drop in August, falling to $0.45. This situation led to concerns for investors who had acquired CRV OTC from Michael Egorov. These investors now find themselves just 12.5% above water on their investment, with five months remaining until they can sell. The report suggests that if crvUSD continues to grow and offsets the decrease in exchange revenue due to declining DeFi volume, CRV’s price could see some relief. However, until then, a drop in DeFi volume remains a significant challenge for CRV appreciation.
Related: Friend.tech Defi Platform Recovers as TVL Tops $20M
Global Interest Rates and the Impact on Stablecoins
VanEck’s analysis delves deeper into the broader market dynamics affecting DeFi. It highlights the effect of global interest rates, particularly in the United States, on stablecoins. During August, the aggregate market capitalization of stablecoins fell by 2% to $119.5 billion. This decline is primarily attributed to elevated interest rates in traditional finance, which encouraged investors to divest their stablecoins and migrate to money market funds offering approximately 5% risk-free yield.
As DeFi continues to evolve, this comprehensive analysis provides a nuanced perspective on the sector’s performance in August. It underscores the sector’s resilience in the face of challenges and its potential for recovery in the months ahead.