Now that the dust from Terra’s spectacular collapse has settled, I thought it would be interesting to delve into the DeFi space and see how the quake affected other protocols. DeFi rose to prominence in 2020, or if you like it in popular vocabulary, during a period known as the “DeFi Summer”. It has since cooled off a bit – yields have dropped across the space as the market has become a little more efficient, which makes sense. Well, there was still quite a juicy yield available on the Anchor protocol, actually – salivating 20% – but I knew it didn’t end so well.
As the DefiLllama chart above shows, the total locked value of Anchor (TVL) has dropped from $18 billion to zero. If you click on “Play Timeline” in the upper left corner of the chart below, you will see TVL for the entire Terra blockchain, which until a few weeks ago had a comfortable position in second place, second only to Ethereum. How the mighty fell.
Guess who’s back, back, back, back again
So how have the rankings been shaken? Well, to answer Eminem’s question, is the suddenly smug-looking DAI stablecoin back, back, back, back again. MakerDAO is King of the Hill once again, with $9.5 billion worth of TVL putting it as the #1 protocol, following the curious case of Anchor’s $18 billion disappearance.
It’s a twist of cruel irony, but logical, of course, as MakerDAO launched the first decentralized stablecoin to achieve genuine prominence – DAI. While my editor Joe KB suggested in our newly launched CoinJournal podcast last week that Americans don’t do irony, I’m sure that hasn’t gone unnoticed by anyone. For the uninitiated, DAI shares this alluring quality of decentralization with TerraUSD. DAI supporters will be screaming as loud as they can, however, that there is also a very important distinction – DAI is guaranteed. To give a quick explanation, DAI is created when users borrow against blocked collateral. On the other hand, it is destroyed when that loan is repaid, when the user simultaneously regains access to the blocked collateral. It’s almost nauseating how much sense this makes when compared to TerraUSD, yet it was losing significant market share to all things Terra, with founder Do Kwon not throwing any punches in his war against this logical stablecoin.
by my hand $DAI will die. — Do Kwon 🌕 (@stablekwon) March 23, 2022
Curve and Aave are the two protocols behind MakerDAO in this new top three. Likewise, they also present themselves as old, perhaps “less sexy” protocols than the admittedly stunning, albeit inherently flawed, Anchor protocol. The TVL on both is similar at $8.9 billion and $8.5 billion, respectively. I thought Yield App CEO and Founder Tim Frost had some interesting thoughts here when he said the following: “It is exciting to see Maker DAO, the original decentralized stablecoin project, return to the top spot in terms of Total Locked Value (TVL) this week. According to data from Defi Llama, Maker DAO — the home of the US dollar-pegged stablecoin DAI — is reporting a TVL of nearly $10 billion on Wednesday. While down 30% from where it was last month, this marks a major achievement for one of DeFi’s oldest projects and an encouraging sign for the entire industry. He went on to say that “these top three survivors of DeFi (MakerDAO, Curve and Aave) truly represent the cream of the crop, providing a snapshot of the industry’s evolution from its early days in 2014 to today. It also shows how solid development, track record and reputation are important in this industry. These projects were developed during the bear markets of 2018”
final thoughts
Frost is right with his comments. And while overall DeFi TVL has plummeted in line with the recent market downturn, that would always be the case. It remains a highly experimental area in what is suddenly an aggressively risky market. But these three big dogs, if I may use that scientific language, have the closest thing to a respectable track record you can find in the DeFi industry, which has only been around since 2018. There is a parable here, actually, being seen over and over again. times across all asset classes and markets. We went through a period of heady expansion where everyone and their grandmother managed to make money. I’m pretty sure my grandma’s monkey got to 3Xd her cryptocurrency portfolio during the bull run. But with the money printer going down, rates going up, and a list of other bullish factors that I just don’t have the energy to type right now, demand has been sucked out of the economy. A natural flow of all the foam was sorely needed, and we’re right in the middle of a space correction. Fads like the Anchor just became the latest tale of bubble hysteria gone awry. If this is the dot-com bubble burst, established names like MakerDAO, Curve and Aave are in a better position to be Amazon and rise from the ashes once we get back on track. Sometimes less sexy is a good thing. At least that’s what I tell my mirror in the morning after a night spent staring at the red candles on my computer screen.
