Unique Addresses Using DeFi Protocols Grow by 65% in Q2, Institutional Capital Flooding in DeFi Too: ConsenSys
As of July 1, 2021, 161 million unique Ethereum addresses have been created, an increase of 10% over Q1 and a decrease in the 12% growth since January, according to ConsenSys’ 2Q21 report.
2.91 million unique addresses used at least one DeFi protocol by the end of Q2, representing a 65% growth from Q1. However, DeFi addresses are just 1.81% of all Ethereum addresses. The report noted,
“As community driven education, simple user interfaces, appealing yields, and general awareness around DeFi best practices increased throughout the quarter, so too did the number of new addresses.”
Growth in DeFi usage can also be seen in popular Ethereum wallet, MetaMask’s monthly users, which surpassed 8 million due to the development of DeFi applications on other Ethereum Virtual Machine (EVM) compatible networks that users can access via MetaMask, like BSC and Polygon.
These EVM compatible blockchains took off in Q2, attracting users with much lower fees and higher throughput with the number of transactions on BSC and Polygon’s Proof of Stake commit-chain overtaking Ethereum.
In the DeFi space, DEXs saw their highest volume ever in Q2 at $343 billion, surpassing the leading crypto exchange in the US, Coinbase’s $335 billion volume in Q1. Coinbase had identified decentralized exchanges as one of the key threats to their business in S-1. It went public via a direct listing in Q2.
Interestingly, DEXs enable trading only for EMV-compatible assets while more than half Coinbase’s trading is in Bitcoin.
Regulated Institutional Investors Stepping In
Over the past year, DeFi has come a long way and has now started to attract institutional investors' attention. ConsenSys noted,
“With radical financial innovation and growth comes radical investment returns and opportunity, leading to more and more institutional capital flooding into this space.”
This can be seen in Coinbase custodial assets at over $90 bln and Gemini having more than $30 bln in assets under custody, while purely institutional custodians like Bitgo having have at least $16 billion assets under custody.
The report further mentions PWC reporting 47% of traditional hedge fund managers representing $180 billion of AUM looking at investing in crypto. An Intertrust survey finds that hedge funds are expected to hold 7% of their assets, equating to $312 billion in crypto in 5 years.
DeFi projects like Aave and Compound are already taking steps towards this with permissioned pools and Treasury to earn a fixed rate. MetaMask also launched a wallet built for institutions with an address tracking system called Codefi Compliance that allows custodians to identify addresses within pools suspected of nefarious activity effectively. The report says,
“Driven to take advantage of the exceptional investment returns, but also able to do so from a regulatory and compliance perspective, more regulated institutional investors are now stepping into this space.”