DeFi Report November 2019

• Total Value Locked (ETH) goes parabolic, reaching 4.40M ETH
• 1 in every 40.25 ETH is now locked in DeFi applications
• +44.3% increase in TVL (ETH) since August of 2019
• Derivatives sector (+136.3% increase in TVL) performed best in November
• In the past 3 months, prominent DeFi projects have raised $37.4M
• DEX Volumes (notably Uniswap and Kyber) reach all-time highs
• MakerDAO launches Multi-Collateral Dai featuring the Dai Savings Rate
• Decentralized Autonomous Organizations (DAOs) begin to garner significant traction within the DeFi community
• Composability continues to be a vital aspect in the proliferation of DeFi

Download: DeFi Report PDF by DeFiRate.com

Month	ETH Locked (1st)	ETH Locked (30th)	30-Day Percentage Increase
August	1.862M	2.078M	+11.6%
September	2.081M	2.186M	+5.04%
October	2.186M	2.384M	+9.05%
November	2.396M	2.687M	+12.14%

In short, November has been a great month for the DeFi space at large. With the launch of MakerDAO’s Multi-Collateral Dai, the ecosystem’s go-to stablecoin received a substantial upgrade – liking boosting long-term growth potentials due to a handful of new improvements that we’ll dive into later.

In the past month, total value locked (TVL) saw a slight uptick with an increase from $640.34M to $678.44M (+5.94%) over the past 30 days. While a 6% increase may seem significant in traditional terms, this is largely seen as stagnant through a crypto-oriented lens. Fortunately, this slow growth in USD TVL is largely due to ether’s price performance rather than fundamental growth in DeFi as a whole.

Ether experienced a -18.9% drawdown in price as USD value decreased from $182.44 to $153.24 where it roughly sits today. Given this performance, it’s important to look at total value locked in ether terms to get a better representation of growth.

The total value of Ethereum-based assets has soared from 3.382M ETH to nearly 4.487M ETH representing a +32.6% increase since November 1st. It is important to note that this metric includes the amount of DAI, SNX, WBTC and other crypto assets locked away rather than just a pure ETH locked in DeFi applications.

All Total Value Locked data via DeFi Pulse

Looking into the amount of ETH locked, we can see that there has also been substantial growth in the past 30 days. On November 1st, ETH locked in DeFi applications sat at just 2.396M ETH (2.21% of total supply). Since then, it has increased to 2.687M ETH (2.48% of total supply) over the course of the past month.

In terms of monthly performance, we saw one of the best months this quarter with a +12.1% increase in ETH locked across DeFi applications as a whole. As it stands today, 1 in every 40.25 ETH is now locked in DeFi applications compared to the 1 in every 58.08 ETH back in the beginning of August.

Sector Growth

To keep this consistent throughout the rest of the report, we’ll largely be looking Total Value Locked (ETH) rather than Total Value Locked (USD) or Total Ether Locked. We believe this is the most inclusive metric for looking at total value locked across the board as it includes all assets being locked while mitigating any noise from short term price action.

Lending

Project	ETH Value Locked (1st)	ETH Value Locked (30th)	30-Day Percentage Increase
MakerDAO	1.696M	2.126M	+25.3%
Compound	670.1K	645.1K	-3.7%
InstaDapp	176.9K	229.7K	+29.8%
dYdX	156.0K	144.2K	-7.5%
Nuo Network	58.3K	52.1K	-10%

With MakerDAO and Compound, the lending market still dominates the overarching DeFi industry in terms of total value locked. As it stands today, lending total value locked sits at just under 3M ETH or 66.8% of DeFi’s aggregate TVL. With this, MakerDAO completely dominates the lending sector with 70.93% dominance and 2.1M locked in ETH terms. The second closest is Compound with just 642.9k ETH currently locked in the protocol followed by InstaDapp with 229.5k ETH locked.

Taking a step back, the lending sector as a whole saw a moderate increase in value locked over the course of November. At the beginning of the month, TVL in ETH terms sat at 2.613M where it increased to nearly 3M ETH in the past 30 days representing a 14.81% increase in the sector as a whole.

 Data via DeFi Pulse

In terms of specific lending projects, we’ve seen mixed growth across the board. InstaDapp and MakerDAO lead the growth in the lending sector with a sizable +29.8% and +25.3%, respectively. Outside of those two lending projects, the other three major projects in the top 5 actually saw a decrease in growth in November where Nuo Network and dYdX lead with -10% and -7.5%, respectively. In addition, Compound saw a slight downturn in TVL despite closing a $25M round led by a16z earlier this month.

Derivatives

Project	ETH Value Locked (1st)	ETH Value Locked (30th)	30-Day Percentage Increase
Synthetix	489.9K	1.125M	+129.6%
Nexus Mutual	10.1k	10.3K	+1.9%
Augur	3.43K	2.92K	-14.8%

While the amount of derivatives projects still remains scarce, the projects shown on DeFi Pulse saw a substantial amount of growth this month. The growth was almost entirely led by Synthetix’s recent surge. On November 1st, 503.5K in ETH value was locked in derivatives applications. By the end of this month, this number surged to over 1.17M in ETH value resulting in a +132.3% increase in the past 30 days alone.

 Data via DeFi Pulse

While the derivatives sector saw a massive increase in TVL, pretty much all of it derives from Synthetix, in which the platform surged by +129.6% and to #2 in TVL across all sectors. With this, Nexus Mutual, a decentralized insurance protocol, stagnated this month while Augur saw a relatively substantial drawdown of -14.8%.

As it stands today, Synthetix currently holds a monopoly on the derivatives market with current dominance ranging around 98.85%. Looking at the derivatives market as a whole, there’s plenty of opportunity for new projects to emerge in the coming months given that the legacy derivatives market is by far the largest in terms of market capitalization.

DEXs

Project	ETH Value Locked (1st)	ETH Value Locked (30th)	30-Day Percentage Increase
Uniswap	126.0K	159.6k	+26.6%
Bancor	31.8K	29.1K	-8.4%
Kyber	22.5K	22.8K	+1.3%

Decentralized Exchanges are still rather nascent as we continue to explore exchanges with the most intuitive UI/UXs. With that said, the DEX sector is one of the more significant growing sectors in DeFi with plenty of room to run as the narrative for permissionless, non-custodial exchanges begins takes center stage.

At the beginning of this month, the DEX sector soaked up around 180.3K ETH in value locked where it ultimately increased to 211.6K ETH in less than 30 days. With that, the DEX sector saw a moderate increase of +17.35% over the course of November where Uniswap dominated the market by representing 75.41% of total value locked in ETH terms.

 Data via DeFi Pulse

Uniswap led the charge this month in growth with a respectable +26.6% increase in total value locked. Comparatively, Bancor actually saw a decrease of -8.4% in total value locked while Kyber Network stagnated at 1.3% despite seeing ATHs in exchange volume earlier this month.

Total Value locked aside, the amount of volume passing through DEXs has seen significant growth in the past month. Just his past week, Uniswap announced their highest 24-hour volume to date, a signal that DEXs are beginning to see increased usage by the Ethereum community at large. From our perspective, we believe this is due to popular DeFi assets such as MKR and SNX favoring DEXs over centralized exchanges like Binance. In the event that other DeFi assets follow this trend, it’s likely that DEX volume will continue to grow in the coming months.

Assets

Project	ETH Value Locked (1st)	ETH Value Locked (30th)	30-Day Percentage Increase
WBTC	28.59K	29.13K	+1.9%
Set Protocol	13.31K	9.16K	-27.7%
Melon	1.40K	1.41K	+0.71%

The asset space largely consists of three projects on DeFi Pulse: WBTC, Set Protocol, and Melon Protocol. For the most part, the asset pace saw a slight decrease in TVL in term ETH terms. At the beginning of the month, around 43.74k of value in ETH terms was locked in asset protocols. By the end of the month, TVL decreased to 39.71K ETH representing a -9.21% decrease in assets locked.

 Data via DeFi Pulse

The decrease in the asset sector was entirely driven by Set Protocol. This loss is rather interesting as TokenSets tend to perform better during bearish and neutral markets which was apparent over the month of November. Regardless, we’ll continue to watch closely to how TokenSets continue perform with their automated trading strategies. Just to give some additional color on how TokenSets are performing, the highest performing TokenSet this month was the RSI 60/40 Crossover with a 19% increase while the worst performing TokenSet was the BTC/ETH 75/25 Weighted TokenSet with a -3.5% decrease over the course of the month.

Outside of Set Protocol, WBTC and Melon saw relatively stagnant growth this month. WBTC’s idle growth is something to note as Bitcoin within the DeFi ecosystem seems like a perfect fit. However, we believe WBTC’s growth has slowed down due to the spec release earlier this year for tBTC, a trustless mechanism for minting BTC on Ethereum. It will be interesting to see how tBTC will play a role in DeFi once it’s live on Ethereum Mainnet in the coming months.

Sector Performance

In summary, the fastest growing sectors this month were derivatives and DEXs. Derivatives growth was largely due to Synthetix’s recent surge while DEXs and lending saw rather similar growth metrics of +24.0% and +15.7%, respectively. The only sector that saw a decrease was the asset sector with a loss of -8.7% due to Set Protocol’s decrease in total value locked.

Sector	ETH Value Locked (1st)	ETH Value Locked (30th)	30-Day Percentage Increase
Derivatives	503.5K	1.19M	+136.3%
DEXs	180.3K	223.6K	+24.0%
Lending	2.61M	3.02M	+15.7%
Assets	43.5K	39.7K	-8.7%

Lending

Launch of Multi-Collateral Dai

The lending sector reached a historical milestone with the launch of MakerDAO’s Multi-Collateral Dai (MCD). On November 18th, MCD introduced an exciting range of new features to the Maker Protocol, most notably the introduction of the Dai Savings Rate (DSR) and the addition of new collateral types. Maker Governance (through MKR holders) voted for the approval of BAT as the first new collateral type in MCD. The Dai Savings Rate allows Dai holders to earn savings natively through the protocol by locking DAi into the DSR smart contract. At inception, the DSR was set at 2% APR.

With the DSR, users will have an accessible mechanism for earning interest on Dai with no liquidity impediments as well as act as a vital balancing mechanism for the overarching system as the DSR rate is derived from stability fees paid by Maker Vault owners.

In addition to the launch of MCD and the range of new improvements to the protocol, the maker DAO team also launched two new products: Oasis Borrow and Oasis Save.

Oasis Borrow is the new user interface to allow users to access their collateralized assets in vaults and generate Dai

Oasis Save is the new web portal for accessing the Dai Savings Rate. Users will be able to easily earn the DSR through a new intuitive user interface.

Both of these products create new accessibility and usability mechanism to streamline the launch of MCD and the new features that comes with it.

With MCD officially launched, we can expect Maker governance to start becoming a more active aspect of the protocol as a whole. Community members will play an increasingly important role to ensure the protocol continues to progress in the right direction. Similarly, the Dai Savings Rate is entirely community based and will rely MKR governance to determine the proper rate in order to properly balance the system.

Compound Raises $25M in Cash

The lending sector also saw a rather important signal through the completion of Compound Finance’s $25M Series A led by a16z earlier this month. In addition to a16z, Compound also saw participation from Polychain Capital, Paradigm, Bain Capital Ventures, and others.

The completion of the Series A by prominent crypto funds solidifies the importance of DeFi through the eyes of venture capital firms. Compound Finance has been the de-facto lending and borrowing platform for the DeFi community and has established itself as a vital backbone to the lending sector at large.

While Compound has seen success in the venture capital sector, its growth has slowed down in recent months as it lost its #2 spot on DeFi Pulse to Synthetix.

Looking forward, with the launch of the DSR, it will be interesting to see how Compound fairs with the addition of another savings mechanism in the DeFi Space. We can imagine that in the long-run, the DSR will act as the base interest rate for Dai and third-party lending applications will base their lending rates off of the DSR. This idea draws a parallel to the Federal Reserve’s risk-free rate and commercial bank’s risk premium rates on loans such as mortgages, student loans, and others.

Derivatives

The Surge in Synthetix

The derivatives market is by far the largest legacy markets in existence today, with a high-end estimated market value of over 1.2 quadrillion dollars. As such, derivatives sector was the fastest growing market in terms of TVL this month. With the growth largely led by Synthetix, the use of sUSD and other Synths began to rise in tandem. Recently, Synthetix has added a number of new synth options, further increasing the use-cases that make the platform so attractive. One of the more notable additions was the release of a DeFi basket which effectively allowed investors to purchase a single token that represents a weighted portfolio in popular DeFi assets. These assets and their respective weights include:

• MKR = 25.00%
• LINK = 25.00%
• ZRX = 13.00%
• SNX = 13.00%
• REN = 6.00%
• LRC = 6.00%
• KNC = 6.00%
• BNT = 3.50%
• MLN = 2.50%

All of the assets in this basket where determined through Twitter polling. One of the things Synthetix should consider the future is potentially implementing governance rights with the SNX token in order to govern which Synths are allowed to be minted (rather than relying on Twitter Polls).

In addition to the new Synths, the Synthetix team also implemented the Vega upgrade (also known SIP 29). This improvement proposal removes the functionality to mint, burn, or claim rewards in any Synth other than sUSD. The team implemented this protocol upgrade rather quickly due to the possibility for bots to quickly mint Synths before a new price update, burn it immediately, and thus profit from price movement without paying any exchange fees. Ultimately this new upgrade should streamline any possibilities for bots to manipulate the exchange and should boost future payouts to SNX stakers.

Nexus Mutual Implements Dynamic MCR%

At the beginning of this month, Nexus Mutual, a decentralized insurance protocol, implemented a new feature for a dynamic capital floor. With this upgrade, the minimum capital floor can dynamically increase when the mutual has excess capital which in turn increases its capacity to cover future smart contracts. This upgrade is vital to the long-term growth as smart contract cover is currently concentrated to a small group of systems. For those unfamiliar, the Mutual sets a maximum capacity on specific contracts to never surpass 20% of the total capital requirements (currently ~7000 ETH). The limit exists to ensure the mutual has a high probability to payout all future claims.

With all of that in mind, Nexus Mutual was running into trouble as users were only taking out covers on a select few contracts and maxed out the capacity for certain contracts. As a result, the mutual’s fundamental growth stagnated while NXM price increased due to MCR% surging to nearly 150%. While this is great for token holders, the high MCR% creates inefficiencies within the system as there’s an excess of capital not effectively being deployed to cover smart contracts. Now, with this new upgrade, if the mutual’s MCR% is ever greater than 130%, the minimum capital floor can be increased by 1% which allows for additional capacity for smart contract covers on the higher demanding contracts.

This improvement was well-known to be a short-term detriment to NXM price, however, does present a much healthier, long-term growth prospect for the mutual as capacity for contract covers can consistently increase over time. As of writing, the mutual recently bottomed out the MCR% at 130% and NXM price is now beginning to recover as more covers are deployed.

UMA Protocol’s Shitcoin Index

On a light hearted note, one of the interesting things that came about this month was UMA Protocol’s release of the Poop.Exchange which tracks shit sightings in San Francisco. The ERC-20 token was built using UMA’s Synthetic Token Builder to create a token that tracks the frequency of poop sightings as reported by San Francisco’s SF311. The price of the token increases when more shit is reported while token issuers win if the shit reported goes down.

Ultimately, while this token is by no means vital to the derivatives sector, but it does shed light on the creative potential for creating derivative tokens with UMA’s Synthetic Token Builder. Looking forward, we’re extremely interested to see what other derivatives and other products are created in the future with UMA’s open protocol.

DEXs

Volumes Reach All-Time Highs

Despite a significant downtrend in digital assets this month, major DEXs like Uniwap and Kyber recently reported the highest volumes they’ve seen since inception. The surge in volumes comes at an important time as centralized exchange hacks and data privacy continue to be an issue for the broader crypto community.

Graphic via Uniswap

In 2019 alone, we’ve seen seven exchange hacks on major exchanges including Cryptopia going dark on January 15th, Singapore-based DragonEX losing an undisclosed amount of user funds on March 24th, Bitthumb losing $13 million of EOS and $6.2 million XRP back in March, the Binance’s hack of 7,000 BTC, and the most recent UpBit hack where $50M in Ether was stolen from the exchange to name a few. This doesn’t include the BitMEX email leak incident that happened earlier this fall as well.

While centralized exchange concerns may be one of the driving factors, the proliferation of DeFi definitely deserves some credit as well. Decentralized finance has prompted a shift towards new tools to encompass a full suite of decentralized, permissionless financial services. One of these services obviously includes swapping digital assets in a trustless manner. With the launch of Uniswap and Kyber, the intuitive UI/UX that they provide makes DEX usage easy for the average user.

More importantly, liquidity on DEXs has surged in tandem with volumes, making it easier for larger orders to be completed with little slippage. With Uniswap, we’re beginning to see seamless tools for contributing towards a liquidity pool along with more open data on their potential returns with websites like Pools.fyi

Graph via Uniswap

DEX usage is trending north and we can assume that usage will continue to increase throughout 2020 as centralized exchanges continue to have security and data privacy issues.

Assets

A Progressive Month for Set Protocol

While Set Protocol saw a decrease in total value locked, the protocol actually saw substantial progress as there were multiple new TokenSets launched as well as upgrades to the TokenSet explorer and most notably, announcing the future launch of Set Social Trading.

Towards the latter half of the month, Set Protocol deployed a new Set Explorer page where viewers can now easily see TokenSets ranked by market cap along with the performance of the Set over a given time period (1 day, 1 week, 1 month, 3 month, 1 year). The launch of the explorer will drastically help new users decide which TokenSet best fits there strategy based on historical performance in the past rather than relying on the blackbox that existed prior to the launch.

The most notable announcement coming from the Set Protocol camp was Set Social Trading launching in early 2020. Set Social Trading is a marketplace and network that will enable traders to create their own trading pools where they can execute trades on digital assets like ETH, WBTC, USDC, DAI, cUSDC, and cDAI among others. With this, followers can join certain trading pools and automatically mimic the pool’s lead trader. This announcement comes after eToro’s popular social trading feature which allows users to copy other traders on the eToro platform.

The notable difference with Set Social Trading is that this will now occur in a permissionless, decentralized fashion that is core to the DeFi movement. This means anyone will be able to participate in this feature rather than the siloed, centralized fashion that currently exists on eToro.

Stagnated Growth for Melon Protocol and WBTC

Outside of Set Protocol, the only other asset-based DeFi applications are Melon Protocol and WBTC. For the most part, these two saw little growth and minimal news in the month of November. If you’re interested in learning more about Melon Protocol, the Messari Research team released a report exploring the mechanics behind Melon and its open source protocol for on-chain management of pooled digital assets.

WBTC saw minimal growth this month. While BTC in DeFi seems like a perfect fit due to a range of benefits, WBTC has struggled to maintain its growth pattern that became apparent earlier this summer. We believe this can largely be due to the whitepaper release of tBTC, a trustless ERC-20 token fully collateralized by BTC. Since the release of tBTC specification in late-July/early August, WBTC has only seen a 5.45% growth in total value locked compared to +273.8% increase between May and August.

 Data via DeFi Pulse

Outside of the launch of MCD in mid-November, the stablecoin market generally saw decreases across the board in market capitalization. Tether still leads the market with $4.12B currently circulating the market. However, given some of the controversy surrounding the collateralization, we’re hesitant to hold much weight to its current market cap and its dominance in the market. Usage of Tether in the DeFi ecosystem is largely non-existent as it stands today With that said, the second largest stablecoin USD Coin which has established itself as the only fiat-collateralized stablecoin widely used in the DeFi ecosystem.

While Sai (single collateral Dai) saw a significant amount of growth, it shows a decrease in overall market capitalization due to the launch of Multi-Collateral Dai earlier this month as users begin to migrate their stablecoins from Sai to Dai. With that, SAI peaked at a market cap of $103.9M on November 17th after hitting its debt ceiling of $100M in early November. By hitting its debt ceiling, the community is signaling a growing demand for MakerDAO’s permissionless stablecoin. With that, the MKR Governance voted to raise the debt ceiling to 120M Dai ahead of the launch of MCD a week later.

Asset	Reported Market Cap	30-Day Percentage Change
Tether (USDT)	$4,124,775,647	+0.02%
USD Coin (USDC)	$450,958,890	-4.3%
Paxos Standard (PAX)	$218,544,638	-10.3%
TrueUSD (TUSD)	$161,720,782	-10.5%
Sai (SAI)	$83,049,201	-8.8%
Gemini Dollar	$5,110,557	+2.5%

Data via CoinMarketCap

Interest Rates

Seeing as Dai and USDC are the primary stablecoins used within the DeFi ecosystem, we’re mostly concerned with the rates surrounding those two stablecoins. In terms of the 30-day average interest rates, Poloniex’s current offering on USDC is one of the highest on the market with an APY of 8.06%. For Dai, the highest yielding platform is dYdX boasting a moderate 5.24% return per annum. Generally speaking, with the introduction of Multi-Collateral Dai and the Dai Savings Rate, it will be important to see how lending rates are affected across the lending market.

Table via DeFi Rate

Honorable Mentions

Outside of the more well-known sectors, we wanted to take this section to highlight a few other updates that are relevant to DeFi at large but do not fall into an existing categories. In particular

• Stake Capital launches Stake DAO – a mechanism to tokenize staking revenue in the form of LTokens.
• RealT adds tokenized real-estate to Uniswap, marking the first security tokens to be traded on a decentralized exchange.
• Kyber Network announced their virtual hackathon winners – all of which were extremely DeFi focused.
• MetaCartel DAO announced their latest round of grants, many of which included DeFi-based projects.

Sleeper Pick: Nexus Mutual

As the amount of value being stored via DeFi products continues to rise, the ability to insure assets become that much more necessary. While many of us are aware of Nexus Mutual – a decentralized insurance protocol – you might not know that the project leverages an in-app governance dashboard similar to https://vote.makerdao.com where the mutual incentivizes governance participation through NXM rewards.

We’ve decided to choose Nexus Mutual as our first sleeper pick as there’s expected to be a number of upgrades to NXM staking and governance elements that *should* allow for more capital to be locked within the protocol. In particular, there has been talk of implementing a pooling system which shares rewards pro-rata based on staking contribution size. In this sense, we expect to see staking participation increase, a feature which was paramount for the growth of Synthetix and SNX price this past month.

Similarly, Nexus has also expressed interest in different ways to grow the Dynamic Capital Pool – allowing for coverage on a greater amount of assets. Combined with upgrades to the distribution of covers, it’s likely that DeFi product providers will be able to leverage new tools that allow for a more intuitive coverage process on new smart contracts being deploying. All in all, we expect that insurance will serve as a crucial back-bone for DeFi composability and see Nexus Mutual as the primary provider of those covers at this point in time.

In the coming months, we may expect to see more examples of native assets being represented on existing DeFi products. Up until this point, DeFi has been largely focused on the Ethereum-native assets (ERC20s) with the exception of wrapped Bitcoin (WBTC, tBTC). In the coming month, we expect to see other native assets such as EOS represented in the DeFi ecosystem. Synthetix has already started this charge by providing a synth for XTZ. Moving forward, it seems logical that other native assets will also be represented via wrapping and derivatives.

Similarly, we expect to see composability continue to increase. The winner’s of Kyber’s virtual hackathon show that users are starting to experiment across the board with different tools to connect the unique values of specific applications into more generalized interfaces, further building on the notion of accessibility at large.

Generally speaking, it’s become quite clear that much of Ethereum’s focus is continuing to evolve the DeFi landscape at large. We expect to see more iterations of larger players getting into DeFi with the incorporating of Multi-Collateral Dai into the backbone of many service providers, such as exchanges and OTC desks.

With notable conference such as San Francisco Blockchain Week and ETH Waterloo hosting a variety of DeFi hackathons, presentations and conversations, it’s evident that DeFi has quickly established itself as the new narrative for Ethereum at this point in time.

As far as larger trends are concerned, we encourage you to keep exploring the idea of composability, or figuring out how these different products can mesh and enhance the greater value for individuals across the board. If one thing is for certain, the amount of collaboration we’re seeing among DeFi products and services serves as a great reminder of how far we can go when we choose to build together, instead of alone.

If you or your project are building in the DeFi space and are looking for coverage, please don’t hesitate to reach out. We’re always looking to find new projects to write about!

In the meantime, be sure to follow us on Twitter for all things DeFi. Until next time!