The Coin Metric State of the Network Report #135 notes that decentralized finance (DeFi) has experienced tremendous growth during the past few years.
At present, the most widely-used metric to measure DeFi adoption is called “Total Value Locked”, or TVL.
According to Coin Metrics researchers, Total Value Locked is a “deceptively complicated” metric hiding under a “benign” name, with each word bringing its own unique challenges.
For instance, “Total” means tracking “all the versions of a protocol which can exist on multiple chains (Ethereum, Binance Chain) as well as L2s/sidechains like Polygon or Fantom.”
Meanwhile, “Value” means “finding a robust price for each of the thousands of assets that can be used as collateral.” And “Locked” is a “misnomer as liquidity can be added or removed quite quickly in most protocols.” It also “means untangling the links between each asset to avoid double or triple counting.”
As explained by the Coin Metrics team, DeFi enables the “creation of asset derivatives that rehypothecate collateral.”
As noted by the researchers, some assets used as collateral in DeFi apps are derivatives that “represent existing claims on other collateral, like in the theoretical.”
As an industry, it is vital to converge on better methodologies to “contextualize and caveat growth in DeFi applications,” the report noted while adding that this will be “a collaborative process, and Coin Metrics looks forward to contributing to better metrics in 2022, and learning from the community as a whole.”
Antoine Le Calvez, Lead Data Engineer:
Stablecoins had “an enormous 2021, with the total supply of stablecoins surpassing 100B by May and now quickly approaching 150B.” However, an increase in total supply was “not the only change that was noticeable on-chain.”
Daily usage patterns of Tether issued on Ethereum (USDT_ETH) shifted this year. Historically, the majority of Tether activity has “mostly occurred during Asian business hours.” But over the course of 2021 the “distribution of activity by hour shifted later in the day towards European/US market hours.”
Nate Maddrey, Senior Research Analyst:
NFTs have become “one of the most dynamic sectors of the burgeoning cryptoeconomy.” With thousands of different NFT projects and more launching, NFTs now represent “a material percentage of all activity on Ethereum.” The daily number of ERC-721 transfers “increased by more than 10x from the beginning of 2021 to today, with over 24M transfers recorded YTD.”
Kyle Waters, Research Analyst:
First launched in November 2018, Uniswap had “a big 2021 with the protocol’s third iteration, Uniswap V3, releasing in May.”
WETH (the ERC-20 compliant version of ETH) is “by far the most popular quote asset, and many tokens only trade against ETH (in pink), likely reflecting ETH’s role as a versatile and highly liquid native asset to the Ethereum DeFi ecosystem.”
Uniswap recently “set a new 24H volume record of $4.8B amid the recent uptick in crypto market volatility, and also launched a version of the protocol on Polygon, a PoS chain interoperable with Ethereum.”
Anthony Mandelli, Community Manager:
One of Coin Metrics’ goals is to “determine the economic significance of public blockchains.” The team tries to “achieve this by building metrics that empower people to make informed crypto financial decisions.”
Victor Ramirez, Data Scientist:
Google search trends can be “an insightful proxy for gauging public curiosity in crypto keywords around the globe.”
Google search trends can also “help quantify shifts in the zeitgeist.”
NFTs have “undoubtedly seeped into the public consciousness in a big way this year, attracting their own share of controversy, yet unlocking new forms of memetic energy that can onboard millions more into crypto.”
Kendall Weihe, Frontend Software Engineer:
Deep market liquidity is “an important feature of any mature financial market. In Issue 124, we investigated if BTC and ETH spot market structure is showing signs of maturation.”
Christine Lee, Senior Data Scientist:
‘Monthly active users’ (MAU) is “commonly used to track the amount of 30-day unique users of apps and social media networks.”
Most apps “require an email login (or equivalent) so are able to get a relatively accurate measurement of the unique number of users.” Although due to its pseudonymous nature crypto doesn’t have an exact equivalent, “our monthly active addresses metric serves as an interesting proxy.” Monthly active addresses “measures the amount of unique addresses that either sent or received a transaction over the previous 30 days.”
Parker Merritt, Customer Success Manager:
Miners are “often considered natural sellers of bitcoin (BTC).”
Their revenue is “earned from block rewards and transaction fees which are paid out in BTC.” But their costs, like electricity and rent, are “paid using fiat currencies.” Miners therefore “need to sell a certain amount of their BTC to cover costs and stay profitable.”
Miner-exchange flows “give an interesting look into miners’ on-chain behavior.”
For more details on this report and other previous reports, check here.
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