DeFi: An eventful quarter on the decentralized finance side

Image source: Free Stock photos by Vecteezy

Decentralized finance has been one of the sectors that has grown stratospherically in recent years by offering a myriad of borrowing and lending apps that deliver double and sometimes, for a short time, triple-digit annual returns. What has happened in this sector in the last three months?

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Hacks exploded in Q3

The innovative, ambitious and attractive solutions of decentralized finance have caught the fancy of users without them being, for a large part, aware of the risks involved. As Chainalysis, a company that provides data, software, services and research to government agencies, exchanges, financial institutions, and insurance and cybersecurity companies in more than 70 countries, reports, October 2022 is a particularly dark month for decentralized finance (DeFi). October is now the highest month of hacking activity on applications in this sector. So far this month, $718 million has been stolen from DeFi protocols across 11 different hacks.

Value hacked in dollars per month in 2022 – Chainalysis

At this rate, 2022 – in the midst of the bear market – will likely surpass 2021 as the hacking year with the highest siphoned dollar value. So far, hackers have raked in more than $3 billion from 125 hacks.

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Total value pirated in hacks since 2015 – Chainalysis

To finish up on the hacking aspect within decentralized finance, we see that almost all hacks have been done so far on decentralized finance protocols in 2022.

Different sources of hacking since 2015 – Chainalysis

Interchain bridges remain a major target for hackers with 3 bridges breached this month and nearly $600 million stolen, accounting for 82% of October’s losses and 64% of losses for the entire year. We explored the risks of these bridges in this article: cross-chain bridges account for 69% of hacks

Decentralized finance: demand stabilizes

Despite hacks on DeFi reaching historic levels of siphoning, activity on the various decentralized finance protocols stabilized in Q3 2022. Total Value Locked (TVL)* in DeFi applications grew by 2.9% in the third quarter (Q3) compared to the previous quarter (Q2) after an unprecedented dizzying drop in Q2 compared to Q1 following the fall of the Terra ecosystem.

*Total Value Locked (TVL) = Total value of assets (in dollars) deposited and locked (during a certain period) in DeFi’s protocols through smart contracts. An increase in TVL means an increase in the liquidity and popularity of the protocols. Conversely, a decreasing TVL implies deteriorating liquidity and lower returns on the products offered.

Total Value Locked in DeFi (billions of dollars) – DappRadar

Ethereum remains the blockchain hosting the largest amount of flows within DeFi with a 69% dominance over the entire DeFi ecosystem. 48 billion is locked on Ethereum, a 3.17% growth over Q2. Binance Smart Chain (BSC) was once again the runner-up in Q3 with $6.6 billion in TVL, a 10.89% growth over Q2. Its dominance position also increased from 8% in the previous quarter to nearly 10% for this quarter.

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This quarter, the TVL of Tron, another infrastructure blockchain, increased by more than 46% from the previous quarter, reaching $5.7 billion, making it one of the strongest quarters on record for Tron. In addition, its dominance position increased to 8.30%. This expansion was fueled by the collaboration and appointment of Wintermute as a new official market maker for Tron and strategic partner.

Evolution of blockchains by LST (billion dollars) – DappRadar

Finally, we see significant growth in Layer 2, where Optimism and Arbitrum both hit $1 billion in TVL, a significant increase from the previous quarter. Optimism climbed 263%, while Arbitrum grew 36%. This increase was fueled in part by the Ethereum merger. We recently explored these Layer 2s in this article: Layer 2: Ethereum’s magic potion.

All in all, decentralized finance seems to have stabilized in Q3 with TVL still below early 2021 levels. Hit hard by the collapse of the Terra ecosystem in May 2022, siphoned off by hackers with obscure intentions in the third quarter, weakened by a global economy that is struggling to stabilize, decentralized finance is not evolving in optimal conditions to continue to grow at present. See you in early 2023 for a new state of play of this sphere of the crypto ecosystem.

Would you like to part of decentralized exchange and finance? Also, want to secure exchange experience: Trade on Venice Swap today.

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