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DeFi lending platforms and DEX volumes surged in Q1 2021

2021.04.07 Matthew Lam

As the decentralized finance market surpasses $50 billion in total value locked, OKEx Insights analyzes the year's first quarter of DeFi in 2021.

DeFi Digest image

The total cryptocurrency market capitalization recently pushed above $2 trillion — benefiting the decentralized finance ecosystem. The total value locked in DeFi protocols surpassed $50 billion for the first time and stands at $52.06 billion, as of the time of this writing. Compound overtook Maker's leadership in TVL this week with an 18% market share.

The total borrowing volume of DeFi protocols posted 16% growth this week, clocking in at $15.06 billion. The lending market is currently being led by Compound, which has a 43% market share.

Decentralized exchanges continued to thrive as the weekly average trading volume surged by 11% to $3.08 billion. Uniswap remained the leader with a 36% market share. At the same time, SushiSwap continues to be the largest liquidity pool — with its TVL reaching $1.76 billion.

CategoryKey statisticsAmountWeekly % change
OverallTotal value locked (USD)$52.06 billion22%
Market dominance (%)Compound (18%)
LendingTotal borrowing volume$15.06 billion16%
Market dominance (%)Compound (43%)
DEXsWeekly avg. trading vol.$3.08 billion11%
Market dominance (%)Uniswap (36%)
Yield farmingLargest liquidity poolSushiSwap ($1.76 billion)
The DeFi market posted double-digit percentage growth in total value locked, lending and weekly DEX trading volume. Source: DeFi Pulse and DeBank

A fruitful first quarter for DeFi

The first quarter of 2021 saw remarkable growth in the DeFi sector, as the total value locked in DeFi protocols tripled, from $15 billion to $46 billion. Lending and decentralized exchanges are the two largest DeFi segments, with a combined market share of over 85%.

Lending and DEXs dominated the DeFi sphere in terms of total value locked. Source: DeFi Pulse, OKEx Insights

Lending platforms lead DeFi growth

Lending platforms accounted for the largest share of DeFi growth over the start of 2021. The total borrowing volume of lending protocols nearly quadrupled from $3.6 billion at the beginning of Q1 to $13.14 billion by its end.

The DeFi lending landscape is dominated by Compound, Maker and Aave. Maker has led the lending sphere with the highest total value locked. However, its leadership was recently overtaken by Compound, following the release of the Compound Grants Program.

Decentralized governance is the core focus of development for both Maker and Compound in the second quarter. For instance, Maker introduced the concept of self-sustaining DAOs in paving the way toward complete decentralization. Compound continued to push forward its governance initiatives via its grants program and the introduction of Compound nonfungible tokens. Meanwhile, Aave partnered with Polygon to improve scalability.

Maker dominated the DeFi lending landscape in the first quarter. Source: DeFi Pulse, OKEx Insights

The current DeFi lending landscape is expected to become more competitive in the coming quarters following the launch of Anchor protocol. The protocol introduced the concept of benchmark DeFi interest rates — setting a precedent for other lending platforms to follow.

DEX trading volume surges

The explosive growth of decentralized exchanges is another key driver of the booming DeFi market. As of the end of Q1, the total monthly volume almost tripled from $25 billion in December 2020. The daily average DEX trading volume rose from $0.71 billion to $2.26 billion — representing a 318% quarterly increase.

The daily average DEX trading volume increased drastically in Q1 2021. Source: Debank, OKEx Insights

Uniswap, SushiSwap and Curve are the three protocols currently dominating the DEX landscape. The race to be the top DEX intensified in March. SushiSwap regained its leadership in mid-March following its listing on Coinbase and the release of its margin lending platform, dubbed "Kashi." SushiSwap's leadership was shortly overtaken by Uniswap two weeks later when the protocol unveiled its v3 design for automated market making.

The vast market dominance of Uniswap faded in Q1 following fierce competition from SushiSwap and Curve. Source: DeFi Pulse, OKEx Insights

The leading decentralized exchanges have various focuses when it comes to strategic development. For instance, Uniswap v3 prioritized capital efficiency and the mitigation of inventory risk via its concentrated liquidity feature. However, users are more exposed to impermanent loss when the price moves beyond their customized price ranges. 

On the other hand, SushiSwap focused on liquidity pool expansion by integrating liquidity from both centralized and decentralized exchanges. The protocol aims to leverage the reputation and deep liquidity of CEXs to increase its liquidity by multiples.

However, the current decentralized exchange leaders — alongside the majority of DEXs — offer limited protection against impermanent loss. While Bancor is the only protocol offering impermanent loss insurance to its users, IL protection will be the core development focus for DEXs in Q2.

OKEx Insights presents market analyses, in-depth features and curated news from crypto professionals.

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Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.