Defi is more scalable than traditional finance, according to a new study

Even though the total value locked in has dropped from the peak of $180 billion in December 2021, to just over $50 billion at the end of October 2022, some sectors of the defi market “show a very optimistic trend.“

Lowering the total locked value

According to Hashkey Capital’s year-end report, decentralized finance (defi) has the “Potential to be several times more scalable than the traditional financial industry“. In addition to this potential, defi protocols are resilient and are likely to emerge unscathed from black swan events such as the Terra luna/UST collapse, the report suggests.

However, in the report titled Defi Ecosystem Landscape Report, Hashkey Capital – an end-to-end digital asset financial services group-acknowledged that the adverse market conditions that largely prevailed in 2022 contributed to the decline in the value of total assets under management.

“The decline in TVL – Total Value Locked (an indicator of Defi’s total assets under management) – was also driven by general market conditions. Lower crypto prices (due to a generally unfavorable macro) mean that the value of collateral provided in Defi loans is also lower, reducing the incentive to obtain a loan against that collateral. DEX [échanges décentralisés] crypto trading activity and volumes are also lower “, the report said.

As the report’s data shows, LST, which peaked at $180 billion in December 2021, fell from just under $150 billion observed around May 2022, to just over $50 billion at the end of October. Despite this decline in TVL, according to the report, some sectors of the challenge market “still show a very optimistic trend.“

Slowing down of the growth

In terms of the scale of adoption, the report acknowledges that there has been a slowdown in the growth rate in 2022 (31%) compared to 2021 (545%). Noting this result, as well as the increase in the number of wallets to over 5 million, the report states:

2022 can be seen as a year of consolidation where most projects are busy building and improving their products rather than spending resources on marketing activities. 2022 is also the year when the user interface and user experience of Defi protocols have improved dramatically, to the point where we can finally say that it is easier to use some Defi protocols than to use a home banking application.

According to the report, much of the support for Defi protocols has come from venture capitalists who have poured “14 billion into 725 crypto-currency projects (many of which are Defi)” in the first half of 2022.

Regarding the likely trigger for defi’s next summer, the report points to the derivatives and options sector, where key platforms like GMX have seen a “ substantial growth in users and LST. “From a TVL of $108 million at the beginning of 2022, GMX saw that value rise to $480 million by the end of October. Another platform, Dydx, which has seen its token price drop 90 percent in a year,”has earned more than $50 million in revenue and continues to have more than 1,000 weekly active users.“