Messari: DeFi industry updates look for hope

Key takeaways:

  • DeFi protocols have lost an average of about 60% of their market cap in the past 90 days;

  • Compared to the trading volume of other DeFi sectors, DEX usage has been less affected. Among DEXs, Uniswap continues to “suck” the volume of other smaller competitors;

  • 1inch’s integration of Synthetix’s atomic swap feature has significantly boosted the revenue of the synthetic asset segment.

In recent times, DeFi has been caught in a difficult situation caused by the chaos of the cryptocurrency market and the macroeconomic turmoil. Terra collapsed and Three Arrows was liquidated, triggering a forced sell-off of billions of dollars, and rising interest rates sucking liquidity from risky assets like cryptocurrencies. As a result, the average market capitalization of DeFi protocols has dropped by around 60% over the past 90 days.

Messari: DeFi industry updates look for hope

But not without hope, price is not the only performance indicator for this nascent industry. Through a more thorough analysis of different DeFi protocols, it is not difficult to spot two notable trends in the recent market downturn: the relative stability of DEXs, and the significant increase in the adoption of synthetic assets due to the Synthetix upgrade.

Messari: DeFi industry updates look for hope

In a bear market, DEX remains stable


Unlike other protocols that rely primarily on market demand for leverage, DEXs offer more predictability due to their relationship to stablecoins. The growing supply of DeFi stablecoins has provided DEXs with a buffer against market downturns — facilitating transactions on DEXs as traders flee to these stablecoins.

Messari: DeFi industry updates look for hope

As a result, the overall decline in DEX trading volume (-47%) was smaller than that of lending (-76%), bot pools (-84%), perpetual contracts (-64%), and options (-69%) protocols. Uniswap usage has increased relative to its competitors amid declining transaction volumes across all industries.

Since liquidity is a reflex phenomenon, it becomes even more important during market declines – traders face greater slippage, and they flock to the most liquid markets to get the best prices.

Given that Uniswap has established itself as the most liquid DEX on the market, its relative volume growth in the current market is not surprising. However, the recent Uniswap Governance Forum proposal on whether to turn on the “fee switch” has gained a lot of support, or will jeopardize this dominance in the coming months.

Messari: DeFi industry updates look for hope

Relatively low usage volatility and relatively high TVL have allowed DEXs to generate the vast majority of DeFi’s total revenue over the past month. While the $70 million in revenue was down 62% from the past three months, it was still roughly in line with the combined monthly revenue of all other segments ($84 million). Given the cloudy macroeconomic backdrop, DEXs are likely to continue to account for the lion’s share of DeFi revenue as traders continue to reduce leverage.


Synthetic asset protocols perform well

Messari: DeFi industry updates look for hope

Although DEXs have performed steadily in recent months, the sector is one of the least efficient in terms of revenue per unit of TVL (return on assets ROA). Protocol models for perpetual contracts and options naturally generate high ROA. Still, these are below the synthetic asset’s 2.5% ROA.

Synthetic asset protocols (mostly Synthetix) have been relatively niche due to their high collateral requirements and lack of integration of the synthetic assets produced by the protocol. Synthetix protocols have been exceptionally prominent in recent months thanks to the recent Synthetix upgrade to support wider integration of external protocols.

Synthetix released atomic swaps in 2021, allowing users to price synthetic assets through a combination of Chainlink and UniswapV3 to automatically swap assets, avoiding lengthy oracle waiting periods. While this opens up the possibility for Synethtix to integrate with more protocols, the requirement that the source or destination asset be sUSD (Synthethix’s native stablecoin) also severely limits this partnership.

Synthetix’s most recent upgrade in May removed the sUSD limit and opened the door for 1inch to integrate Synthetix atomic swaps. As a DEX aggregator, 1inch helps users find the lowest slippage and reach the best deals. On the supply side, Synethtix’s zero-slippage environment makes the protocol one of 1inch’s most attractive liquidity providers, gaining more 1inch routing demand for transactions.

Messari: DeFi industry updates look for hope

1inch’s late-May Atomic Swap integration saw Synthetix’s transaction volume surge in mid-June. Since Synthetix incurs fees on any transaction, an increase in transaction volume will naturally increase Synthetix’s revenue. But Synthetix’s TVL remains the same due to the immediate entry and exit of liquidity. As a result, Synthetix improved the efficiency of the synthetic asset segment (as measured by ROA) by 1,853% from three months ago.

Messari: DeFi industry updates look for hope

Synthetix’s recent recovery could be the start of a virtuous growth cycle for the protocol. At the time of writing, the SNX token is up 40% in July. Since SNX is the collateral asset for synthetic debt on the Synthetix platform, the increase in the value of SNX expands the Synthetix debt ceiling. More debt creates more liquidity for Synthetix-based integrators and applications such as Lyra and Kwenta to use in their services, creating more potential volume for the protocol. Further atomic swap integration and continued migration to Optimism layer2 will be important factors to monitor going forward.


As we’ve seen in past cycles, bear markets have diluted inflated expectations and refocused the market’s attention on project fundamentals. While DeFi token prices have fallen along with the broader market in recent months, the protocol itself is operating as usual. DEXs are more active than other sectors as traders rely on DEX services to exchange assets for stablecoins. During the downturn, the synthetic asset class became the most efficient DeFi sector due to Synthetix’s key protocol integration. While prices may continue to fall in the short term, DeFi’s strongest projects will use this time to create sustained momentum for their long-term growth.

Posted by:CoinYuppie,Reprinted with attribution to:
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