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In the letter
- The volume of decentralized trading fell by almost half in October, taking into account the unusual volume related to Harvest Finance’s DeFi exploit.
- Uniswap still processed over $ 11 billion in trading volume for the month.
- DeFi is balanced overall, with total value stuck at just over $ 11 billion.
Decentralized exchanges could go out of style as quickly as they were adopted, with October seeing major drops in volume across the board. IS DeFi begins to lose its luster?
Decentralized trading volume decreased more than 26% in October from the previous month, processing about $ 19.3 billion in total, according to blockchain data provider Dune Analytics. But that doesn’t tell the full story, and the drop in volume among Ethereum-based DEXs would have been much more pronounced had it not been for the anomalous peak on October 26.
Accounting for the unusual volume related to the Harvest Finance hack which totaled nearly $ 5 billion between Uniswap and Curve, the decline in volume was much more significant: down 45% in October from the previous month.
October is, in fact, the first month since April that decentralized trading volumes have declined sequentially and the magnitude of the decline reveals a major shift in the focus of the crypto community.
Decentralized Exchanges, or DEXs, allow users to trade between crypto tokens without first giving up custody of their coins, as required when using centralized exchanges. Trades are done directly on the blockchain, using an automated code known as smart contracts to match orders with pool of liquid assets provided by other users of the protocol.
Decentralized exchanges are part of a larger group of protocols known as DeFi, or decentralized finance, which aim to replace centralized services, such as centralized crypto exchanges and banks, with financial products and services running on the blockchain.
The decentralized trading volume had been down since June, going from an aggregate trading volume of $ 1.6 billion that month to over $ 26 billion in September when the volume peaked. Uniswap, a DEX popularized through its simple interface and some of the lowest trading fees in the industry, dominated DEX volume over the previous period and still captured nearly 58% of all volume in October, over $ 11 billion or $ 9 billion excluding its share of the unusual volume of Harvest Finance.
The DeFi protocols overall had a better month, but are still breaking even. Total Locked Value in DeFi, which measures the value of user funds that helped allow protocols to issue loans or provide liquidity for DEXs, started the month at $ 11.17 billion and ended October 31 with $ 11.14 billion blocked, according to the DeFi data aggregator DeFi Pulse.
While the reasons for the decline in DEX volumes are likely varied, some industry observers have suggested that booming volumes as of June were unsustainable and that the the high-yield incentives that drove most of the action have run out. In early October, said Sam Bankman-Fried, CEO of cryptocurrency exchange FTX volumes on decentralized trading were “bullshit“ and it would soon diminish. Till now, it seems he was right.
