Declining DEX volumes reflect DeFi investors shift to Bitcoin — Data shows

All eyes are set on Bitcoin (BTC) as the digital asset continues to trek to a new 2020 high. Meanwhile, the hype around decentralized finance projects continues to die down, especially as token prices plummet. Data shows that trading volume for decentralized exchanges, or DEXs, is dropping rapidly, further signaling the decline of the DeFi sector.

The recent hack of Harvest Finance saw volumes across DEXs boom for one day, especially Uniswap and Curve. According to media reporting and Harvest investors, the hacker executed a flash-loan exploit that used millions of dollars worth of cryptocurrency across both Uniswap and Curve to drive down the perceived prices of Tether (USDT) and USD Coin (USDC) tokens on Harvest Finance.

The attacker then bought those tokens at a discount, used them to pay back the initial flash loan, and netted a tidy profit in the process. By doing this multiple times, volumes at Uniswap were inflated.

While the hack bumped daily DEX volume to just over $5 billion for the day, the anomaly was short lived, and since then, volume still seems to be on a steady decline.

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Daily DEX volume. Source: Dune Analytics

In the second half of October, DEXs saw the worst week in terms of trading volume since August. Weekly volume dropped from the $8 billion record in the first week of September to roughly $3 billion from Oct. 19-25. Uniswap is still leading the pack with a 56% market share of all DEX trading volume.

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Weekly DEX volume. Source: Dune Analytics

Despite the major correction seen across DeFi assets and reduced trading volume, the total value locked has remained near record highs. Data from DeFi Pulse shows the total value locked is currently at $11.2 billion, a slight drop from the Oct. 25 all-time high at $12.46 billion.

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Total Value Locked (USD) in DeFi. Source: DeFi Pulse

DeFi season ends right as the Bitcoin bulls come back

As the hype around decentralized finance recedes, Bitcoin is once again in the spotlight. Bitcoin price has soared roughly 24% since the start of October, with multiple high profile bets being made by corporate giants like Square and Paypal, the latter of which could help triple Bitcoin’s user base in the near future.

Reduced trading volume for DeFi shows that traders have lost interest in, to a degree, taking profits and are returning to Bitcoin. This is further cemented by the rising volumes seen across Bitcoin derivatives products.

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BTC Futures Volume by Exchange. Source: Digital Assets Data

While it’s difficult to discern the impact institutional players are having on Bitcoin price action, the recent acquisitions and surges in options and futures volumes do indicate that bulls are at play.

Following PayPal’s announcement that it will add Bitcoin to its platform, the price of BTC rallied nearly 10%. On Oct. 23, Grayscale announced that a whopping $300 million of crypto assets were added in just one day, and currently, the firm holds $7.6 billion in assets under management.

Can DEXs survive?

With investors shifting their focus back to Bitcoin, some wonder what the future holds for decentralized assets. The total value locked in DeFi has remained high, but this may change soon due to the reduced trading volumes on exchanges.

Since a big part of rewards on DeFi protocols is associated with trading volumes, lower volumes will lead to lower yields for liquidity providers and further diminish investor’s interest in DeFi.

According to Ilya Abugov, lead analyst at DappRadar:

“There has been a bit of a drop off since the end of summer, but I think that is only natural. Periodically hype outruns real growth and so is followed by a bit of a cool off period. However, from a fundamental perspective there is nothing that has damaged the story of DeFi and DEX growth. New projects are being developed.”

Despite facing some real challenges, a number of DeFi projects continue to receive strong interest from investors. On Oct. 28, Yearn.finance founder Andre Cronje released Keep3r, a decentralized job platform powered by the KPR token marketplace for technical jobs.

Despite the lack of announcements, investors jumped on the opportunity to participate in the project, and traders drove the price of KPR up by 570% from $24 to $162.58. The project also saw more than $255 million in trading volume on the first day of trading.

The hype around Keep3r shows that interest is still there if the right project presents itself. New projects and developments in DeFi may help generate interest in the field, and Abugov said:

“Now in addition to wBTC, Ethereum DeFi will be introduced to wrapped Zcash and Dash. DEXs facilitate asset exchange and so should benefit from overall DeFi growth. Moreover as we see the play-to-earn grow in DeFi we may see more interconnectedness of the gaming sector with DeFi. That activity should also affect DEXs.”
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