Far from the heyday of a couple of years ago, decentralized finance (DeFi) protocols continue to lose users and investment, says a report from analytics firm Glassnode. The consolidation of staking in Ethereum as an investment method is an important factor that works against them, they say.
In it reportGlassnode explains that DeFi had a 90% decrease, compared to the beginning of 2021, in the price index weighted by the offer made by the analytics firm. A central fact for this to be the case is the progress of native staking in the Ethereum network.which currently provides annual returns close to 4%.
DeFi had its “moment of glory” between 2020 and mid-2021. Back then, they accounted for 30% of gas usage on Ethereum. One sign that its decline began at that point was that tokens from major DeFi protocols such as Uniswap, Aave, and Compound did not follow the bull run that ETH did at the end of that year. The tokens, Glassnode says, are a sample of the use of the protocol by users, which is reflected in the demand for the token.
This is also reflected in the use of gas by these protocols., which has declined since 2021. In the image above you can see some high spikes in activity, which Glassnode links to moments of market volatility. In these circumstances, users operate to save their funds or to take profits, depending on each case.
Ethereum native staking advance
Ethereum staking on its consensus layer or Beacon Chain was enabled in December 2020. At that time, with fewer validators in the network, the yields were higher, close to 20%. To be an independent validator, a deposit of 32 ethers (ETH) is required. Another alternative is to join a staking pool to obtain profits that will depend on the investment made.
Despite its origin several years ago, Recent events have consolidated Ethereum staking as a low-risk investment. and with stable earnings. First, the Merge happened in September 2022 without any problems and confirmed Ethereum’s move to proof-of-stake (proof of participation).
Later in time, the activation of Shapella enabled withdrawals of staked ETH in April. Far from diminishing the number of validators, This encouraged more to join in contributing to the operation of the network to generate passive income.
The security and trust that the Ethereum mainnet inspires it is at odds with the risk that underlies many DeFi protocols. Various cases of hacking or security problems around these platforms have been reported in CriptoNoticias, including some of the most valued on the market, such as Yearn Finance or Euler Finance.
A piece of data that ends up confirming the lack of interest in DeFi and an opposite trend in Ethereum staking has to do with the number of new addresses. While the Glassnode report details new DeFi addresses at around 600 per day, with a very steep decline from 4,000+ addresses per day by the end of 2022, the new addresses of Ethereum exceed 60,000 each day. This can be an indicator of where users are moving or the preferences of new investors entering the world of cryptocurrencies.