DeFi Market Cap Dumped 75% in Q2, But User Activity Fared Better: Report

The first half of 2022 was a bumpy ride for crypto investors. With the crypto market still bleeding, investors are bemoaning losses as the DeFi market cap fell by over 74% in the second quarter of the year, according to CoinGecko.

Terra’s Ripple Effect on DeFi

The crypto data aggregator recently published its Q2 2022 Cryptocurrency report, revealing that the DeFi sector went off the edge, mainly due to Terra’s cataclysmic collapse.

Due to Terra’s partnerships and interoperability with other protocols, the crash initiated a massive chain reaction that affected every project that supported its native digital assets.

Terra’s $60 billion implosion heavily impacted the entire crypto industry, with DeFi’s market cap dropping from $142 million to $36 million in three months.

DeFi Hacks Exacerbate Market Downturn

CoinGecko also highlighted that the recent surge in DeFi-related hacks further exacerbated the market’s decline, undermining investors’ confidence in some native protocols.

The report cited the Ethereum-based DeFi lending protocol Inverse Finance, which was hacked twice in three months, with the attackers stealing over $17 million worth of digital assets. It also mentioned the attack on DeFi lender Rari Capital, exploited for $80 million in May.

“These attacks have negatively impacted token prices as investors lose faith in these hacked protocols,” CoinGecko said.

DeFi Market Retains User Activity

Despite the massive reduction in DeFi on-chain activity, the report acknowledged that the sector retained most of its users.

While the total daily active users fell by more than 34%, dropping from almost 50,000 to just below 30,000 users in the second quarter, there were certain instances where DeFi activity saw a massive spike. CoinGecko identified two of those.

The first was in early May, during the Terra collapse. Thousands of DeFi users flocked to decentralized (DEXs) exchanges like Curve Finance and Uniswap to sell their LUNA and UST holdings as several centralized exchanges (CEXs) sporadically halted the trading of these assets. As a result, the trading volumes on these DEXs skyrocketed.

The second was in June, when the crypto lending platform, Celsius, imposed withdrawal restrictions on its users. Traders headed to DeFi protocols to enjoy permissionless transactions, causing the daily active users of DeFi protocols to spike by 24%.

Uniswap Dominated 60% of DEX Spot Volume in Q2

The report also highlighted that leading decentralized exchange Uniswap maintained its position as the world’s largest DEX in the last quarter, amassing more than half of the total spot volume traded across the top 10.

Although DEX spot volume dropped to $274 billion in Q2 from the $446 billion recorded in Q1, Uniswap controlled about 60% of the market share across all chains.