Digital-asset investors are flocking to crypto’s decentralized heartland after witnessing the collapse of Sam Bankman-Fried’s FTX exchange.
Decentralized finance, or DeFi, relies on smart contracts -- software that runs automatically -- on blockchains open to public scrutiny and leaves users rather than firms with custody of tokens. That ethos from crypto’s roots is in vogue again after the bankruptcy of SBF’s centralized exchange FTX.
Trading volumes on decentralized exchanges are up almost 11% this month to $62 billion, CryptoCompare data sourced from DefiLlama shows. Lending protocols such as Aave and Compound are also among those seeing strong user and transaction growth, analytics firm Nansen said. In contrast, depositors spooked by FTX have yanked cash from centralized exchanges.
DeFi apps tend to use the blockchain networks like Ethereum, whose co-founder Vitalik Buterin said in an interview that “many in the Ethereum community also see the situation as a validation of things they believed in all along: centralized anything is by default suspect.”
In the week through Tuesday -- a period capturing FTX’s fall -- Nansen data shows user growth at decentralized exchanges dYdX and Curve Finance hit 97% and 61% respectively, while transactions more than doubled. Users on lending protocols like Aave and Compund up 68% and 46% and transactions also doubled.
Buterin isn’t along in seeing a tailwind for DeFi: Franklin Templeton’s Chief Executive Officer Jenny Johnson said earlier this week that FTX’s downfall will likely push investors toward decentralized exchanges.
Just how long the shift toward decentralized protocols will last remains an open questions. Buterin said DeFi is far from being user-friendly, scalable or accessible. Centralized exchange operators like Coinbase Global Inc. are also competing hard for flows.
In 2022 alone, hackers have been able to steal crypto assets worth $3 billion from various defi protocols, data from Chainalysis till October shows.
For now, though, the providers of DeFi solutions are emboldened.
People are “screaming on Twitter that DeFi is the answer,” said Antonio Juliano, founder of dYdX. Mary-Catherine Lader, chief operating officer, Uniswap Labs said FTX’s wipeout makes it “very concrete and painfully clear why people need to have more control over their money.”
Pascal Gauthier, chief executive of hardware wallet firm Ledger, said that “the message is clear: people are realizing that we must return to decentralization and to self-custody.”
“Last week saw Ledger’s highest sales week in history. Sunday was our single highest day of sales ever... until Monday, when we beat our all time high again,” Gauthier said.
The Nov. 11 collapse of Bankman-Fried’s FTX and sister trading house Alameda Research continues to reverberate through the industry. It follows earlier high-profile implosions of crypto outfits and comes amid a painful bear market in digital tokens -- dramatic shift that are set to have far-reaching consequences for the industry.
This article was provided by Bloomberg News.