It’s grim times for DeFi tokens but as prices plunge, protocol revenue remains stable.
The DeFi Pulse Index, which tracks the performance of 14 key tokens including Uniswap and Maker, has skidded 31% in the last seven days and 6.5% in just the last 24 hours, compared with a 2.1% decline for ETH from yesterday.
While DeFi revenue, or fees protocols either pay out to users like liquidity providers or to the project’s token holders, dropped in the last month, it has remained stable in the past week, during the worst of the sell-off.
Last month’s recline has prompted discussion on how sustainable DeFi protocols really are. If transactions, and therefore revenue, dwindles for DeFi at times of a down overall crypto market, that might point to weakness in the sector.
Trading drives revenue on the automated market maker Uniswap. This means that lower trading volume should decrease revenue. A Dune Analytics chart corroborates the theory, showing Uniswap volume, along with other DEXs’ like Sushiswap’s, dropping throughout the month.
Still, it’s worth remembering that the decline comes after an all-time high in volume reached in May.
When isolating for lending revenue, there is a similar month-long slide for the three DeFi lending giants: Compound, Aave, and MakerDAO. Although it bears noting that after mid-May’s sell-off, revenue stabilized, suggesting the protocols have reached a floor in usage. Token prices have continued to dip, perhaps depressed by overall crypto market sentiment.
Plus, stable daily revenue is at roughly $1.8M, a level only topped consistently for the first time starting in March. Like with exchange volume, which drives revenue, lending platforms’ usage and revenue has only dropped to levels first reached this last year.
Outstanding loans on lending platforms have deviated from protocol revenue with the total trending towards the all-time high mark of the mid-May sell-off.
The difference between the flat revenue and increase in outstanding loan value may be due to the interest rates’ downtrend in recent months. As interest rates on loans go down, more can be borrowed for less, increasing the value of the outstanding loans.
In all, while DeFi’s smart contracts showed operational resilience since last month’s stress test, a prolonged bear market is bound to test how open finance protocols’ models hold up.
If it’s any comfort to enthusiasts, after the initial drop in May, protocol revenue appears stable at around $4M a day according to The Block’s methodology. That’s more than twice the average six months ago and more than an order of magnitude where it was a year ago.