Bitwise's Q4 2022 Crypto Market Quarterly Review: Decentralized Finance (DeFi)

The Q4 2022 Crypto Report from the research team at Bitwise Asset Management is live, covering: Bitcoin, Ethereum & Emerging L1s, DeFi, NFTs, and Crypto Equities. This post focuses on the DeFi sector, but the full report is available here.

DeFi's key performance indicators fell across the board in Q4 2022.

• Market Capitalization: -24.5%
• Total Value Locked (TVL): -24.9%
• DeFi Revenue: -27.9%
• DEX Trading Volume: -10.1%
• Stablecoin Supply: -2.3%?

Yet, while centralized lenders & exchanges went bankrupt, DeFi blue chips stood strong.

DeFi Takeaway #1: Blue-chip DeFi protocols worked flawlessly through another major sell-off, while centralized crypto companies (“CeFi”) lost billions in customer funds due to poor risk management.

• BlockFi, FTX, Genesis (aka “CeFi”): Customer assets lost. Exploring (or filed for) bankruptcy.
• Aave, Compound, MakerDAO (aka “DeFi”): Customer assets secured. Functioning normally.

DeFi Takeaway #2: Uniswap grew its market share and shipped new products while centralized competitors held on for dear life.

• Uniswap continued to gain market share against traditional competitors. While Uniswap trailed Coinbase in December, its November strength showed that investors turned to Uniswap during challenging times.
• Uniswap’s new NFT platform cleared $3.3 million of trading volume in its first month. Uniswap’s expansion to NFTs illustrates the ongoing evolution of blue-chip DeFi applications, from single-product to multi-vertical businesses.
• DeFi protocols worked exceptionally well during the 2022 "stress test" ... leaving them well-positioned for growth in 2023. Users flocked to Uniswap as centralized exchanges like FTX went bankrupt. Uniswap’s daily active users set a 52-week high in Q4.

DeFi Takeaway #3: JPMorgan, the world’s largest bank, executed its first DeFi trade using Polygon and Aave.?

• The transaction settled in two seconds with a fee of just $0.02. JPMorgan used Polygon and Aave to deposit and borrow tokenized currencies like the Japanese Yen (JPY) and Singapore Dollar (SGD).
• Executing transactions on-chain simplifies the transfer and custody of the assets and reduces the cost, duration, and risk associated with settlement. Off-chain, financial institutions rely on third parties to transfer and settle the assets, which is costly and time-consuming.
• This trade—while a test project—is a signpost that DeFi is making a dent in the world, and permissioned DeFi and scaling solutions are leading the charge. A year or two ago, this would have been unthinkable.

Check out the rest of the Q4 2022 Crypto Market Quarterly Review from the research team at Bitwise Asset Management for takeaways on other sectors, including:

• Bitcoin by Gayatri Choudhury
• Ethereum & Emerging L1s by Anais Rachel
• NFTs by Juan Leon, CFA
• Crypto Equities by Alyssa Choo
• And more from Mallika Kolar & Matthew Hougan

Complete report available at: https://bitwiseinvestments.com/crypto-market-insights/crypto-market-quarterly-review-q4-2022