The state of DeFi today
No matter how you look at it, DeFi has seen better days. Currently, $288 billion AUD is locked as total value across different DeFi protocols, down from the December peak of $350 billion AUD. Ethereum is down 30% from its TVL all-time high and has lost a good amount of market share (down to 65% of all DeFi TVL). But BNB Chain and Solana have been hit the hardest.
Why BNB Chain and Solana are struggling
BNB Chain, the former Binance Smart Chain, was the first big alternative layer-one chain that gained traction at the end of DeFi summer 2020. In 2021, BNB Chain exploded in value, from virtually zero to a peak of $42.5 billion AUD. It has lost 60% of its value since.
Analysts see BNB Chain’s centralization, constant security issues, and lack of innovation as the biggest problems plaguing Binance’s in-house blockchain. Although it still boasts several respectable exchanges and applications in PancakeSwap, Venus, Alpaca, and Ellipsis Finance, BNB Chain is not the go-to alternative layer-one it used to be a year ago.
A similar fate befell Solana, the second big breakout star after BNB Chain. Propelled by its impressive performance, Solana catapulted to record valuations and an all-time high in TVL of over $20 billion AUD in December 2021. It is now 60% below that high.
Similar to BNB Chain, Solana suffered a major hack when its Wormhole bridge was exploited for $322 million ($441 million AUD). However, the problems started before that. Several network outages laid bare how centralised Solana really is and that its speed comes at a certain cost. Although Solana is fixing these issues, crypto money has little loyalty and investors have already found new darlings.
The rise of Fantom and Terra
DeFi money is rarely gone. It’s just that someone else has it now.
That is the case for Fantom and Terra, two alternative L1s that have seen the bulk of TVL growth in 2022. terra already accounts for 11% of DeFi TVL, growing its sare from practically zero a year ago. Mainly, money is flowing into its Anchor, Mirror, and Astroport protocols, which allow investors to profit from juicy yields on its UST stablecoin.
Fantom is a similar success story, with its TVl hovering around similar values as Terra’s. Its main pull has been Daniele Sestagalli, a flamboyant and wildly popular DeFi developer that built Abracadabra Finance (a lending protocol and algorithmic stablecoin), and Wonderland (a well-designed Ponzi scheme). In February, Sestagalli launched Solidly, a B2B stablecoin exchange that he developed in cooperation with the highly respected DeFi builder Andre Cronje. This pulled in an incredible amount of money as DeFi investors chased new fresh yields in a potentially massive new exchange.
As for retail investors, the lesson is that one should not get married to your investments in DeFi because capital is often mercenary and looking for the best yields. Hire fast and fire faster at its best.
