DeFi market cap fell 75% in Q2, but user activity was better: report

The first half of 2022 was a bumpy ride for crypto investors. With the crypto market still bleeding, investors are lamenting the losses as the DeFi market capitalization fell more than 74% in the second quarter of the year, according to CoinGecko.

Terra’s ripple effect in DeFi

The crypto data aggregator recently released its Q2 2022 cryptocurrency report, revealing that the DeFi sector went over the edge, primarily due to the catastrophic collapse of Terra.

Due to Terra’s partnerships and interoperability with other protocols, the lockdown started a massive chain reaction that affected all projects that supported its native digital assets.

Terra’s $60 billion implosion hit the entire crypto industry hard, with DeFi’s market capitalization falling from $142 million to $36 million in three months.

DeFi hacks exacerbate market downturn

CoinGecko also highlighted that the recent spike in DeFi-related hacks further exacerbated the market decline, undermining investor confidence in some native protocols.

The report cited Ethereum-based DeFi lending protocol Inverse Finance, which was hacked twice in three months, with attackers stealing more than $17 million in digital assets. He also mentioned the attack on DeFi lender Rari Capital, blown up for $80 million in May.

“These attacks have had a negative impact on token prices as investors lose faith in these hacked protocols,” CoinGecko said.

DeFi market retains user activity

Despite the massive reduction in DeFi on-chain activity, the report acknowledged that the sector retained most of its users.

While total daily active users fell by more than 34%, from nearly 50,000 to just under 30,000 users in Q2, there were a few instances where DeFi activity saw a massive increase. CoinGecko identified two of them.

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The first was in early May, during the collapse of Terra. Thousands of DeFi users flocked to decentralized exchanges (DEXs) like Curve Finance and Uniswap to sell their holdings in LUNA and UST, as various centralized exchanges (CEXs) sporadically halted trading in these assets. As a result, trading volumes on these DEXes skyrocketed.

The second was in June, when crypto lending platform Celsius imposed withdrawal restrictions on its users. Traders turned to DeFi protocols for permissionless transactions, causing daily active users of DeFi protocols to increase by 24%.

Uniswap dominated 60% of DEX spot volume in Q2

The report also highlighted that Uniswap, the leading decentralized exchange, maintained its position as the world’s largest DEX in the last quarter, accounting for more than half of the total spot volume traded among the top 10.

Although DEX spot volume dipped to $274 billion in Q2 from $446 billion in Q1, Uniswap controlled around 60% of the market share across all chains.


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