An assessment by VanEck, an investment manager company, shows that in August, exchange volume across decentralized finance (DeFi) protocols was reduced to $52.8B, 15.5% less compared to July.
In August, the decentralized finance (DeFi) network experienced additional hitches as on-chain economic activity declined. An assessment by VanEck, an investment manager company, showed that in August, volume reduced to $52.8B, 15.5% less compared to July.
DeFi Activities Plummets By 15% in August
An analysis captured on VanEck’s MarketVector DeFi Leaders Index (MVDFLE) commonly used in monitoring the performance of the biggest and most liquid tokens on decentralized finance protocols, which includes Uniswap (UNI ), AAVE (AAVE), Curve DAO (CRV), Maker (MKR), Lido DAO (LDO), THORChain (Rune).
The report indicates that in August, the decentralized finance index Ether (ETH) and Bitcoin (BTC) underperformed since they fell 21%. Further, the UNI token negative performance of 33.5% aggravated the findings since investors sold off tokens to seize July gains.
In August, the total value locked (TVL), another critical metric for the system, dwindled 8% from
$40.8B to $37.5B, marginally outdoing Ethereum’s 10% fall. The analysis shows that despite the
decentralized finance tokens performing poorly in August, the ecosystem experienced some
promising developments during the month. Examples included the dismissal of a class-action lawsuit by Uniswap Lab and the growth of Curve and Maker’s stablecoin.
Review of Latest Developments in DeFi
In August, crvUSD, Curve Finance’s stablecoin, recovered from a significant exploit by recording
considerable growth, acquiring a new all-time high of $144M borrowed. CrvUSD is pegged to the United States dollar and depends on a collateralized debt-position structure. This means that users borrowing crvUSD entails depositing security.
The report shows that crvUSD’s growth has made it a significant revenue contributor for the platform, surpassing fees from all non-mainnet liquidity pools in three of the last four weeks.
Nevertheless, since the exploit, Curve Finance’s governance token has yet to depict promising recovery indicators, with a 24% price drop in August to $0.45.
VanEck’s assessment notes concerning the performance of CRV token. Owing to a decline in price, those who in the previous month acquired CRV OTC offered by Michael Egorov are currently realizing 12.5% above their investment, with just five months remaining until they can trade.
In case crvUSD can keep growing to the point of offsetting the exchange revenue dip attributed to the reduced volume of decentralized finance, the price of CRV might experience some downfall. However, till then, reducing DeFi volume remains a major negative factor for CRV appreciation.
Exploit Fueled the Plunge in CRV Market Performance
Michael Egorov, Curve Finance’s founder, had loans amounting to nearly $100M. Additionally, they were supported by 47% of the circulating supply of CRV, the native token of the protocol. Amid the price of CRV dropping almost 30% after the hack, concerns of Egorov’s collateralized loan liquidation evoked worry regarding the contagious impact across the decentralized finance system.
Reducing the debt position entailed Egorov selling 39.25M CRV tokens to many famous DeFi investors throughout the crisis. Further, VanEck claimed that the present international interest rate levels, specifically in the US, keep piling pressure on stablecoins. In August, the stablecoins’ aggregate market capitalization reduced by 2% to $119.5B.
According to the firm, this is primarily caused by higher interest rates in traditional finance. The rates have motivated investors to dispose of their stablecoins and shift to money funds to acquire a risk-free yield of approximately 5%.
The promise of higher returns is drawing investors and hackers along targeting DeFi platforms. Investors have to exercise caution since the popularity of the decentralized platforms has made them a paradise for staging exploits as witnessed in 2023 cybercrime reports. Leading the aggressive exploits are groups linked with the North Korea Lazarus Group.
Editorial credit: Piotr Swat / Shutterstock.com
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