3/14 ETH DeFi Analysis

In this report I will analyze various metrics regarding the Ethereum based decentralized finance sector.

The current total value locked (TVL) in ETH DeFi is $73.93B according to DeFi Pulse, a -25.58% decrease from the TVL observed on 1/1/2022 of $99.33B.

Overall TVL has diminished since the new year, correlating with the decrease in overall capital invested in cryptocurrency found in the crypto market capitalization which decreased -22.66 in the same time period.

According to DeFi Pulse, the largest DeFi protocols in terms of capital invested are Maker, Curve Finance, Convex Finance, Aave, and Uniswap.

Maker ($MKR) is currently the largest lending and borrowing protocol in the DeFi space. Its TVL has grown considerably since 2018, reaching highs of just under $20B in Q4 2021.

The incentive for using a lending protocol resides in the ability to take out collateralized crypto loans without the need for background checks as found in traditional lending and borrowing systems such as banks. There is also incentive to “lend” capital by depositing crypto assets into liquidity pools which reward “lenders” with stable returns and APYs depending on the asset deposited and the length of the deposit contract.

Throughout most of 2021 the amount of crypto deposited outweighed the amount loaned out, but in 2022 there has been a noticeable shift in the ratio where the value deposited has decreased in comparison to the value loaned which has stayed relatively flat according to Dune Analytics.

While the deposited value may have decreased due to a number of factors including the overall lower valuation of crypto, the flight of capital from risk on assets, and the lower amount of active users in the space, the fact that the value amount in loans has remained at elevated levels since November 2021 indicates that users (particularly borrowers) are still participating in the DeFi space and are using the lending protocol as intended.