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Trends in DeFi: A snapshot of Q3 2021

DeFi went beyond the hype in 2021, with the value of the DeFi economy increasing manifolds. Here we take a look at some trends in the DeFi economy in the third quarter of 2021.
by Mattison Asher, Anthony Albertorio, Simran JagdevDecember 13, 2021
DeFi economy

To say that decentralized finance (DeFi) came into its own in 2021 would be an understatement. As an increasing number of investors—individual and institutional—put their bets on DeFi, the value of the DeFi economy went up manifolds. The value of all DeFi assets topped $100B for the first time in October 2021, according to data compiled by DeFi Pulse. 

Here we take a look at some trends in the DeFi economy in the third quarter of 2021. 


Growth of stablecoins supply continues to be diversified on Ethereum with USDC and BUSD increasing market share at the expense of USDT. On Ethereum, which remains the dominant smart contract protocol for stablecoins, USDC has consistently grown its market share year to date. BUSD’s market share expanded over the same time horizon, while DAI’s market share remained stable. USDC is quickly approaching USDT’s market share.

USD Tokens on Ethereum

The stablecoin peg performance graph below shows that most USD-denominated stablecoins have been able to keep peg close to parity with the US Dollar, with only moderate volatility. DAI exhibited more volatility relative to the rest, but DAI is collateralized by other digital assets like ETH, BAT, or USDC, whereas USDC has a harder peg since each crypto dollar is backed by a US dollar held in reserve. All stablecoins had minimum values below and above par.

Stablecoin volatility 1

While stablecoins have been able to maintain peg with some volatility around parity, reserve assets backing stablecoins differ in credit quality and risk. For instance, USDT has significant exposure to commercial paper and corporate bonds relative to PAX and USDC, which are a source of credit risk. DAI is a DeFi stablecoin that is overcollateralized by cryptocurrencies such as ETH, WBTC, and USDC instead of fiat.

Stablecoin reserves 1

Borrowing and Lending

Borrowing and lending in DeFi saw significant growth in terms of outstanding loans in Q3, reaching an all-time high on September 6th, with approximately $24.7 billion worth of debt outstanding. This dramatic rebound in Q3 came after a precipitous drop-off in activity at the end of Q2, where total debt outstanding stood at around $14.3 billion.

Aave leads the DeFi lending protocols with outstanding debt on the protocol standing at $7.4 billion. Interestingly, the market foresaw Aave becoming the leading lending protocol, as the AAVE token has significantly outperformed leading competitor Compound’s COMP token. Furthermore, Aave has attained an approximately $4.6 billion fully diluted market cap while Compound lags behind at around $3.1 billion fully diluted market cap.

Approximately 68.2% of outstanding loans reside in DAI versus 21.9% for USDC, indicating a growing level of trust in the decentralized stablecoin. The increasing level of trust for DAI is likely driven by concerns over the SEC’s ongoing investigation of Circle.

‍User growth for leading lending protocols, Aave and Compound, both slowed in Q3. While Aave’s user base grew by 42% in Q2, from 46,588 total users to 66,083 total users, and grew only 16% in Q3 to approximately 76,909 total users. Similarly, while Compound’s user base grew by about 4% in Q2, from 311,581 total users to 323,759 total users, their user base only grew by 1.9% in Q3 to a total user base of 323,759. While outstanding loans overall have increased dramatically, user growth has not experienced the same exponential growth, meaning that the average debt outstanding per user dramatically increased in Q3. This fact could be driven by the market rally we experienced starting in Q3.

Outstanding Loans per Project

DeFi protocol revenue

The DeFi ecosystem has experienced an unprecedented surge in volume in 2021 as more participants enter the market and more sophisticated financial instruments are built. Popular protocols like Uniswap, PancakeSwap, and SushiSwap are now generating well over $100 million in annualized revenue. dYdX, a decentralized exchange that supports perpetual, margin trading, and spot trading, realized over $45 million in revenue during the month of September.

DeFi protocol market cap VS revenue generation
dYdX 1
Cake 1
Sushi 1

We captured these trends in the DeFi economy, and other topics such as NFTs, Web3, and its governance in our Web3 report Q3 2021. You can access the full report here