DeFi Protocols Face Stress Test Amid Crypto Market Crash, Are They OK?

From point to point, a macro data analysis of how DeFi protocols fared during the stress test triggered by this Black Swan event.

Announcing DeFi Alliance China Chapter | by Imran Khan | DeFi Alliance |  Apr, 2021 | Medium

From point to point, a macro data analysis of how the DeFi protocol performed during the stress test triggered by this Black Swan event.

After the government agency issued a request for a “crackdown on bitcoin mining and trading practices” on the evening of May 21, the global cryptocurrency market experienced a violent shakeout that lasted for two days, with mainstream coins dropping as much as 30% in a single day and more than 50% for other coins.

In fact, the market had already experienced a sharp correction since May 19, and this extreme stress test was another good opportunity to observe the efficiency of the DeFi (decentralized finance) system – especially when the amount of participating funds in the system once exceeded the $100 billion milestone Some of these assets are still being over-pledged or executed in leveraged transactions.

This past weekend’s dramatic volatility was one of the few widespread and highly volatile black swan events since last year’s 312 (Black Thursday). Last year’s flash crash in the 312 cryptocurrency market was most impacted by partial problems with the clearing engine in the chain’s “central bank” Maker system, which was subsequently restored through auctions, improved protocol design, and other means. MakerDAO did not suffer the same problems during this dramatic market volatility.

However, last year at 312, DeFi was not yet mainstream and not yet a direction known to the industry, as the liquidity mining boom had not yet started.

Against this backdrop, and after experiencing significant market volatility again, we wanted to get a clear picture of how these DeFi protocols performed during this Black Swan event-induced stress test by aggregating some macro data from the DeFi world, combined with data presented by some core DeFi protocols during this weekend of market volatility, from point to point.

A look at the overall performance of the DeFi space

DeFi Total Lock Volume (TVL): Nearly decimated

TVL is one of the core metrics used to assess the overall size of the entire DeFi world, and its data is representative of the liquidity situation in the on-chain financial world.

According to DeBank data, the total locked-in volume (TVL) of DeFi protocols across all blockchain networks fell from $130 billion on May 11 to a low of $67 billion in 12 days, nearing a cut (-48%).

DEX Trading Volume: All-Time High

Typically, a highly volatile market will facilitate an increase in trading volume, as DEX may be used for arbitrage or liquidation transactions, and there are also many on-chain native users who may hedge through DEX.

During the market selloff that already occurred on May 19, the cumulative volume of all DEX was the highest ever in terms of daily trading volume, nearly $22 billion.

Collateralized lending data: nearing a cut

Almost all blockchain-based lending agreements are currently implemented through asset collateral, which is also based on volatile crypto assets, so as the market fluctuates, their borrowing data may also be drastically affected.

Looking at the on-chain data, total borrowing volume fell from an all-time high of $26.7 billion to $15 billion, a 44% drop, which is comparable to the level of market declines.

Collateralized lending liquidation data: all-time highs

When crypto assets become more volatile, lending agreements can trigger liquidation due to price fluctuations in collateral, so the liquidation data also reflects some of the market’s leverage. Of course, high liquidation numbers do not mean there are problems with DeFi agreements, as long as none of these liquidations have gone bad or created non-performing debt.

The 19th and 23rd of May saw the highest and second highest liquidations on the chain in history, with $614 million and $140 million of liquidation volume in a single day, respectively. In addition, Venus on BSC also suffered a massive bad debt on May 19 due to the system’s collateralization rate design, generating over $250 million in liquidation volume.

Gas on the ethereum chain has had a more stable response in recent days, although May 19 suffered an instantaneous Gas of over 1,500 Gwei, likely from bots bidding through Gas during the liquidation auction, or users making quick trades when the market fluctuated. But the median for a single day was only 181, none of which was as high as May 11 (306 Gwei), with a gradual decline in the latter days.

This may be related to the recent increase in block capacity of Ether, where the increase in transaction volume has a lower impact on block Gas, or it may be due to the increasing number of miner nodes deploying Flashbots, which can reduce the Gas bidding in MEV.

Stable Coins: Continued Growth

Stablecoins backed by fiat currencies or assets also continue to grow (they are also generally referred to as compliant stablecoins, but USDT is more controversial among them) and have not flowed out of the blockchain or DeFi system due to dramatic market fluctuations, with an overall size of $63.4 billion.

Prophecy Machine Calls: Near All-Time High

The prophecy machine represents how often businesses like DeFi on the chain need off-chain or price data, so the number of prophecy machine calls grew significantly during periods of high price volatility. While not the highest ever, it ranks in the top three all-time, with over 35,000 calls in a single day.

Synthetix is a synthetic asset protocol implemented through extremely high collateralization rates. The protocol’s native token, SNX, can mint various synthetic assets such as sUSD to simulate the value fluctuations of real-world or other cryptocurrency assets through collateralization rates of 5 to 10 times.

However, because of its extremely high collateralization rate, the protocol is relatively inefficient in terms of funding. But even so, many would question the sustainability of the Synthetix model, though fortunately Synthetix has not experienced a stampede or spiral downward in these days of the market.

Data from the chain, DeBank, and CoinMarketCap shows that Synthetix has operated without significant issues over the past few days, and is comparable to the overall volatility of the market, with TVL falling from an original high of $3.8 billion to $2 billion, a drop of about 47%.

Looking at the price of Synthetix’s core USD stablecoin, sUSD, while volatility is slightly higher, the worst-case scenario for a de-anchoring scenario is a transient spread of around 7%, with the overall level remaining at around $1.

Another important data is the collateralization rate, which is still at 520% according to Synthetix’s official data platform, and other project data is also at a relatively safe level.


Maker, the “central bank on the chain,” experienced problems with its clearing system last year at 312, but has performed well in recent days of volatility, showing that the team’s adjusted system design has resolved the problems of last year.

DAI’s issuance is currently about $4.4 billion, while the total amount of assets collateralized across the system is nearly $7.5 billion, with an overall collateralization rate of about 170%.

In terms of liquidation data, Maker liquidated more than $41 million on May 19, a record high. These liquidations are part of the normal business logic and no bad debts have occurred to date during the 312 period.

Also looking at the price of DAI, the dollar stable coin issued by Maker, it is more stable and less volatile than Synthetix’s sUSD, with a price that stays stable at around $1.


The Terra-issued USD Stablecoin UST has not performed as well as it should, and has seen the most severe de-anchoring since Terra issued UST, with UST falling as low as $0.93 and still not fully recovered.

Compared to several other on-chain collateral-based stablecoin protocols, the UST issued by Terra does not have the same mechanism and is partially dependent on Terra’s native token LUNA, so it can be considered an algorithmic stablecoin backed by LUNA. Notably, with market volatility, LUNA’s market cap has fallen below that of the stablecoin UST – and a number of market commentators have pointed out that this could lead to a downward spiral for both assets: if users choose to panic-sell UST, LUNA will collapse even faster.

LUNA’s coin price has rebounded after dropping by half in the last 7 days, possibly because market sentiment has shifted, or perhaps the team has pulled UST back to $1 through massive financial support. There is currently a lot of concern in the cryptocurrency community about the future of UST, with a number of opinions suggesting that these stablecoin agreements with endogenous collateral are risky and that perhaps some additional buffers should be considered to deal with the highly volatile market.


Float, a new generation of non-dollar anchored algorithmic stablecoins, just completed its inaugural offering last week, but was unlucky enough to be hit with a sharp ETH market swing right out of the gate – bearing in mind that Float used ETH as collateral earlier in its life, so it must have suffered greatly.

The good news is that in terms of Float’s price performance, it was launched at $1.618, and despite the price fluctuations, it successfully started and completed its daily auctions and maintained the price at its target price through the daily auctions. Of course, Float had fallen as low as around $1.

Overall, Float is less of a “stablecoin” and its role now is more like absorbing the volatility of the collateral (ETH) through the governance token BANK and auction mechanism, providing a relatively stable asset with a stable price.

Perpetual Protocol

Perpetual Protocol, a derivatives leveraged trading protocol deployed on the Ethernet sidechain xDAI, is also one of the representatives of the trading class of applications, which had a flash crash or “pinning” of the price within the protocol more than a month ago due to the violent volatility of the ETH market, which was nearly $1,000 lower than the centralized exchange.

However, in this case, as you can see from the K-line chart, there were no significant pins.

This is probably because after the last incident, Perp has proposed comprehensive improvements to the problem, including providing more depth, setting limits on opening orders, and going live with a partial clearing mechanism. So from this stress test, Perpetual Protocol still has significant improvement.

Posted by:CoinYuppie,Reprinted with attribution to:
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