The decentralized finance (DeFi) ecosystem suffered more setbacks in August as on-chain economic activity decreased. According to an analysis by investment management firm VanEck, trading volume fell to $52.8 billion in August, down 15.5% from July.
The findings are based on VanEck’s MarketVector Decentralized Finance Leaders Index (MVDFLE), which tracks the performance of the largest and most liquid tokens on DeFi protocols, including Unisawp (UNI), Lido DAO (LDO), Maker ( MKR), Aave (AAVE)), THORchain (RUNE) and Curve DAO (CRV).
The report pointed out that the DeFi index lagged behind Bitcoin (BTC) and Ethereum (ETH) in August, falling 21% that month. This result was further exacerbated by the UNI token’s negative performance of as much as 33.5% as investors dumped the token to capture July gains.
Another key metric for the ecosystem is the 8% drop in total value locked (TVL) in August, from $40.8 billion to $37.5 billion, slightly better than Ethereum’s 10% decline that month.
Analysts believe that although DeFi tokens performed poorly in August, there were positive developments in the ecosystem throughout the month. These developments include the dismissal of a class action lawsuit by Uniswap Labs and the growth of Maker and Curve’s stablecoins.
Recovering from a major breach in late July, Curve Finance’s stablecoin crvUSD saw significant growth in August, reaching an all-time high of $114 million borrowed. CrvUSD is pegged to the U.S. dollar and relies on a Collateralized Debt Position (CDP) model. This means users deposit collateral (e.g. ETH) to borrow crvUSD.
“The growth of crvUSD has made it a significant contributor to platform revenue, with crvUSD fees exceeding fees collected from all non-mainnet liquidity pools in 3 of the past 4 weeks,” the report states. Since the exploit, however, Curve Finance’s governance token has not shown promising signs of recovery, with its price falling 24% to $0.45 in August.
VanEck’s analysis of CRV token performance:
“Investors who bought CRV OTC from Michael Egorov last month are now earning just 12.5% on their investment due to the price drop, with 5 months left before they can sell. If crvUSD can continue to grow to the point of offsetting” due to CRV prices may see some relief as lower DeFi trading volumes lead to lower exchange revenue. Until then, however, declining DeFi trading volume remains a solid resistance to CRV’s appreciation. “
Curve Finance founder Michael Egorov has about $100 million in loans backed by 47% of the circulating supply of CRV, the protocol’s native token. Concerns over the liquidation of Egorov mortgages have raised fears of contagious effects across the DeFi ecosystem as CRV prices fell by nearly 30% following the hack. In order to reduce his debt situation, Egorov sold 39.25 million CRV tokens to several well-known DeFi investors during the crisis.
Additionally, VanEck noted that current global interest rate levels, especially in the United States, continue to put pressure on stablecoins. The total market value of stablecoins fell by 2% in August to $119.5 billion. “This is primarily a result of rising traditional financial interest rates, which incentivizes investors to sell stablecoins and move to money market funds, where they can earn a risk-free rate of return of approximately 5%,” the company wrote.
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