Is the demand for DeFi exploding? Sometimes it may just be the price of the currency that has risen

Overview

• DappRadar said 75% of DeFi’s growth was driven by surging token prices.

• While the total value locked in DeFi grew by $800 million, the increase was only $200 million after adjusting for the data.

• Experts believe that measuring DeFi by total value locked will affect its perception.

The recent growth of Ethereum’s decentralized finance (DeFi) ecosystem may be greatly exaggerated, according to a report released Tuesday by decentralized application (dapp) tracker DappRadar.

One of the most commonly used metrics in the DeFi space is the dollar value locked (TVL). It details how much value is locked in applications in the DeFi space. These funds may be locked in lending applications or providing liquidity to decentralized exchanges. This number has been growing rapidly.

In July, DeFi’s TVL hit $3 billion for the first time. A month later, that number doubled to $6.3 billion. And there are no signs of slowing down. However, DappRadar believes that DeFi’s actual growth is not that fast.

“75% of the total value locked is driven by the price of the token.”

DappRadar says only 25% of the recent growth is due to money entering the industry.

DappRadar analyzed MakerDAO, a top DeFi lending platform with 24% of TVL (about $1.5 billion). DappRadar found that 97% of its TVL was locked in Ethereum (73%), Wrapped Bitcoin (8%) and its own governance token MKR (17%). In the past month, the prices of all three tokens have seen significant increases.

“Over the 30-day period, all 3 tokens have seen price growth. This raises the question of how token prices affect the TVL metric. The total value locked in USD can give a distorted view of DeFi development.”

For example, if the price of a token doubles, this will cause the corresponding TVL to surge. But if the number of tokens actually staked does not change, it means that no new assets are flowing into DeFi.

The researchers noted that despite the massive growth of around $800 million in TVL for MakerDAO’s top 3 tokens, the actual growth was less than $200 million when the adjusted value was calculated.

This article is translated with permission from Decrypt.