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During last week’s sell-off, DeFi showed amazing strength as DEX activity and stablecoin stability demonstrated that the sector may be ready for broad adoption.
During last week’s market sell-off, which saw more than $1 trillion wiped from the global cryptocurrency market cap as traders frantically sought the protection of stablecoins amid plunging prices, the decentralised finance (DeFi) industry faced its first true test.
Despite rapidly decreasing token values, the young DeFi sector held its own on May 19, with decentralised exchanges experiencing a record $11.7 billion in trading activity. Uniswap (UNI) topped the way with $5.7 billion in 24-hour trading volume, followed by SushiSwap (SUSHI) with $2.8 billion.
According to Glassnode’s recent DeFi Uncovered analysis, blue-chip DeFi tokens such as UNI, SUSHI, Maker (MKR), Aave (AAVE), and Compound (COMP) have essentially followed the loss of Ether (ETH) during the last two weeks, “showing relatively high beta to ETH but not exceeding the decline from ATH by more than 15%.”
New users increase despite declining TVL
The price drop, along with users reducing liquidity and switching to stablecoins, resulted in a 42 percent drop in total value locked on smart contracts, which closely matched the declining price of Ether.
TVL is fundamentally linked to the underlying value of the deposited tokens, and given that Ether is one of the key tokens locked throughout DeFi platforms, the declining TVL has less to do with people withdrawing cash and more to do with price declines.
Throughout last week’s slump, the proportion of Ethereum supply locked in smart contracts stayed above 23%, while supply on exchanges “jumped from 11.13 percent to 11.75 percent.”
Despite declining prices, new users continue to enter the DeFi ecosystem, and the total number of unique 30-day traders on the major DEXs topped 1 million for the first time last week during the sell-off.
Uniswap is the clear winner with 815,000 unique users between April 24 and May 23, followed by 1inch (1INCH) with 78,200 users and SUSHI with 10,900 users.
Stablecoins hold their pegs
The thriving stablecoin market and the ability of major stablecoins like USD Coin (USDC), Tether (USDT), and Dai (DAI) to maintain their dollar peg “for the majority of the crash with volume-weighted average prices (VWAP) staying at $1.00 the majority of the time” may be credited to much of the resilience observed in DeFi throughout the sell-off.
According to Glassnode, DAI’s performance was “especially positive for DeFi” since its circulating supply was able to change in response to collateral requirements and protocol stability. The report also said that recovered collateral and DAI were withdrawn from the supply when collateral holders requested redemptions.
“This behavior allows collateral to stay healthy, liquidations remain at a healthy level, and DAI to maintain its peg.”
TerraUSD (UST) was the one stablecoin that struggled to keep its peg when the value of its collateral from LUNA dropped below the value of the stablecoin it collateralized on May 18. This resulted in “unhealthy behaviour in its lending market Anchor (ANC),” resulting in a higher-than-usual number of liquidations on the protocol’s native lending platform.
Overall, stablecoins served their purpose and pegs remained stable across the ecosystem, with on-chain stablecoin transfer volume hitting a record $52 billion at the sell-peak. off’s