DeFi: a widespread slowdown
The report from analytics firm Messari looks at the state of DeFi in Q2 2021. It begins by stating that activity in decentralized finance markets has greatly declined in recent weeks:
” DeFi protocols have seen a decline in activity in the second half of the quarter, as speculation in the markets has died down. “
On decentralized exchanges (DEX), however, the quarter had started off dynamically: DEX volume had jumped from $221 billion to $405 billion for the entire quarter. May in particular accounted for half of the total volume.
But then things went south. As cryptocurrency prices plummeted, volume on DEX also plummeted, from $203 billion in May to $95 billion in June:
The Binance Smart Chain more affected than Ethereum
And this drop has hit the Binance Smart Chain (BSC) in particular. As Messari explains, PancakeSwap, Uniswap’s big competitor that runs on the BSC, had managed to overtake its rival in terms of volume in April.
At the time, the Binance Smart Chain was seen as a serious threat to Ethereum, as it was draining users and developers with low transaction fees and high speed.
But the enthusiasm seems to have died down, according to Messari :
” Since then, [PancakeSwap’s] market share has plunged due to the emergence of Uniswap V3 And of the fading of the Binance Smart Chain ecosystem. after the May crash. “
Proof of this shift: Uniswap accounted for 54% of all DEX volume at the end of the quarter:
In addition, total locked-in value (TVL) in the Binance Smart Chain ecosystem fell by more than 50% in a matter of days, a much larger drop than at Ethereum. Messari gives a primary reason for this:
” Most of the locked value [on the BSC] consisted of assets that had few uses other than speculation. This is different for Ethereum’s TVL, which has a “healthy” dose of stablecoins in its asset mix. Binance Smart Chain’s TVL was very risk-oriented, which made it very sensitive to changes in the markets. “
Polygon emerges as a credible competitor
The report also cites another reason for the dwindling activity on the Binance Smart Chain: the arrival of Polygon:
« Polygon has also played a significant role siphoning off the volume share of DEX from the Binance Smart Chain. “
The report also points out that the high rewards offered on the Binance Smart Chain DEX are double-edged. While they attract many users, they do nothing to retain them, as they go elsewhere when they find more attractive rewards.
Binance Smart Chain: an “Ethereum Killer” that has run out of steam?
So would the Binance Smart Chain not be the “Ethereum Killer” that had been envisioned by some? It must be said that the blockchain had suffered criticism for two reasons. On the one hand, its very important centralization, which is antithetical to the ideals defended by a large part of the crypto community.
On the other, the BSC had seen its DEX and protocols suffer numerous attacks in the space of a few weeks, which had also somewhat dampened the enthusiasm of users. With the cryptocurrency markets still looking bleak, it’s hard to predict the future for the Binance Smart Chain. So it remains to be seen what its place will be in the long run.
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About the author: Marine Debelloir
Intrigued by Bitcoin for several years, I have become passionate about crypto-currencies and the innovative technologies behind them. I like to find the most interesting information to share with you and help democratize this exciting universe. But I don’t stop there! I also like to analyze projects related to cryptos and blockchains, which fascinate me just as much.
All articles by Marine Debelloir.