There’s a growing conviction among crypto traders that decentralized finance, or DeFi, will play a role in the economy of the future. Various cryptocurrencies received a boost of 24% or even 34%, while innovation on these platforms seems ongoing. This vote of confidence happens in a time where inflation hampers economic growth across the world, and centralized exchanges have been struggling with regulatory limitations.
Vote of confidence
Decentralized finance has gotten a vote of confidence from investors, as market leading lending and borrowing platforms Aave (+24.5%) and Compound (+34.6%) have seen strong price increases in their native tokens. At the same time, the trust investors have placed in DeFi is not limited to the Ethereum ecosystem alone. PancakeSwap’s CAKE token on BNB Chain gained 11.5% in value over the past 7 days, while multichain financial platform Trader Joe added 25.3% to its token price.
The trust investors put into DeFi doesn’t only come from regulatory issues with centralized exchanges or economic turmoil across the globe. There’s also innovation happening across the board that brings more financial services and a higher quality user experience into the decentralized ecosystem. Uniswap announced plans for V4, Aave doubled down on its V3 protocol, and Stargate Finance has developed into the number 1 bridging platform on the market.
Technological innovation
The innovation in DeFi can be seen on various levels. First of all, with Arbitrum and Optimism the ecosystem now has two new Layer-2 solutions on top of the Ethereum blockchain that have found traction. In addition, a new type of scaling solution called ZK Rollup, is popping up as well. The biggest names to follow are Starknet and ZkSync. Each of these solutions can offer a solid DeFi ecosystem with lower fees and faster transaction processing. The adoption of Optimistic Rollups can be seen in the chart below, where both Arbitrum and Optimism recorded over 1 million dapp-related transactions in the week of 19 June, that’s 5 to 6 times more than exactly one year ago.
Furthermore, the success that DeFi dapps such as Orbiter Finance and Stargate Finance are finding right now, highlights that the future of blockchain technology will be multichain. This activity gets boosted because of the anticipation of the LayerZero crypto token airdrop. Bridging assets across different blockchains will become an important part of DeFi moving forward.
At the same time, innovation doesn’t only happen in the realm of blockchain ecosystems. Leading DeFi platforms such as Aave and Uniswap keep innovating their product. Aave doubled down on its V3 protocol, allowing more assets in their cross-chain liquidity lending service. In addition, Uniswap announced plans for V4, which will introduce ‘hooks’ to trigger smart contract executions. This paves the way for developers to create unique connections between their platform and Uniswap, strengthening Uniswap’s competitive edge. V4 will also lower the costs for deploying liquidity pools by 99%.
It’s safe to say that innovation in DeFi comes in many shapes and sizes. Moreover, the innovation happens both on an infrastructure level, and on a software level. These developments could explain why DeFi is finding traction amidst a bear market.
Adoption of DeFi growing 35% in 2023
Investors put their faith into various DeFi tokens in the past week, but this hardly moved the needle in terms of unique active wallets interacting with the platforms. Aave saw a 24.5% increase in its token value, now reaching $64.11. However, the number of crypto wallets interacting with the platform only increased 0.84% over the same period. Stargate Finance (+0.27%), Compound (+0.47%) and PancakeSwap V3 (-0.24%) all failed to show growth in their user numbers despite the token value increase.
The number of wallets interacting with dapps in the DeFi category hardly moved, despite the token price increases. At the same time, the Exchanges category was impacted by the price pump BTC and ETH received last week.
Growth could be seen with Uniswap V3, which boosted its number of wallets 8.9% to 198,420 in the past 7 days. In addition, PancakeSwap V2 saw its number go up significantly, overtaking its V3 version and reaching 403,590 unique active wallets. This represents a boost of 48.49%.
It’s important to note that in times of strong price fluctuations these two platforms generally see lots of trading activity, which would not put these numbers out of the ordinary. Bitcoin moved 14.3% up over the past 7 days, therefore increased trading activity on decentralized exchanges would be expected. As bitcoin’s price stabilized and the crypto market found its new price resistance, activity in the Exchanges category calmed down.
With the boost in wallets interacting with DeFi and Exchanges, the number of transactions grew as well. On 18 June, DeFi platforms handled 592k transactions, while Exchanges did 1.12 million. Three days later on 21 June, DeFi reached 643,690 transactions, while Exchanges boosted its numbers to 1.37 million. That’s an 8.7% increase for the DeFi category and 22% for Exchanges.
However, from a bird’s eye view we can see a clear trend. DeFi dapps and decentralized exchanges listed on DappRadar have seen an uptick in adoption since the beginning of the year. The DeFi dapps category now attracts 1.84 million unique active wallets (UAW) per week, an increase of 40% from the 1.31 million UAW in the first week of January. The Exchanges category went from 1.74 million UAW to the current 2.35 million, an increase of 35%.
In the May Dapp Industry Report, we already highlighted the stark contrast between DeFi and the rest of the market. Last month we measured an 18% growth, reaching an daily average of 607,945 UAW. The dominance in blockchain usage by DeFi dapps reached 31%, highlighting the strong market demand for decentralized financial services at the moment.
Investors have identified DeFi as a potential growth market. Continuing innovation and conviction emphasize that idea, while government regulations and limitations force users away from centralized exchanges.
Closing words
Right now, 1.84 million unique wallets interact with DeFi dapps on a weekly basis, while 2.35 million wallets use platforms listed in the Exchanges category. That’s a 40% and 35% increase compared to early January. Even though increased token prices don’t automatically mean more user adoption, it’s clear that DeFi adoption is happening.
By taking a broader view on the entire sector and combining that with macroeconomic developments, the DeFi sector is well-positioned to onboard even more users. Regulations will come at some point, for example from the French financial markets regulator AMF, and technological innovation and improved user experiences will make DeFi future-proof.
Keep your eyes on the DeFi industry to see which platforms revolutionize the user experience, and create more financial tools on the blockchain.
More useful links
- Top 10 Best Crypto Airdrop Opportunities – discover where to explore and earn airdrop rewards
- How to Borrow and Lend Crypto – a guide to using and understanding lending platforms in DeFi
- Protect Yourself from MEV Bots with Flashbots RPC – learn how to counter bots in DeFi
