Crypto Users Jump to DeFi Platforms in Wake of FTX’s CeFi Crash

Nansen Data Show Double-Digit Jumps in Users at MakerDAO, Aave, and Other Protocols

Don’t look now, but the FTX collapse has spurred a wave of interest in decentralized finance platforms. 

DeFi protocols are experiencing double digit increases in the number of users over the past week, according to data from Nansen, the blockchain analytics platform. 

MakerDAO, DeFi’s largest protocol with $6.5B of total value locked (TVL), has increased addresses by a third in the last week. And other top 10 protocols have also attracted huge jumps in users, with Aave, a lending protocol, notching a 70% increase, and Curve, a DEX, a 63% spike.

Lender Compound and yield booster Convex also drew 30% rises in users, according to the data Nansen shared with The Defiant. 

Take Control

It appears that crypto users are eager to take control of their digital assets in the wake of the bankruptcy of FTX, the No. 2 crypto exchange worldwide and one that was now notoriously centralized and run by a black box model of scant transparency, and questionable practices. 

Martin Lee, an analyst at Nansen, said the data also show that crypto users are jumping into DeFi protocols in response to the market volatility over the last week. 

Massive Outflows

“There’s evidence of people prioritizing self-custody, at least for this moment,” he told The Defiant. Lee said there were massive outflows of both Ether and stablecoins from exchanges in the past week as potentially further evidence in people’s push to self-custody. (Nansen defines a “user” as a unique address that interacts with another address or smart contract which the company labels as belonging to a given protocol). 

The implication is that, if people are taking ETH off exchanges, they are at least in part withdrawing the asset to their own wallets. 

In support of this analysis, Ian Rogers, chief experience officer at Ledger, which produces the hardware wallets often used by people to self-custody their digital assets, reported that Nov. 15 was a record day in sales for the company.

In addition to the double digit increases in percentage of users of major protocols, Uniswap, another DEX, had the second largest volume of all crypto exchanges this week.

On Nov. 14, the DEX hit $1.1B in volume in a 24-hour period, second only to Binance and ahead of Coinbase, according to Uniswap’s founder, Hayden Adams. 

This surge in DeFi comes after FTX morphed from crypto ambassador to bankrupt embarrassment in little more than a week. The moment may prove pivotal for the crypto industry but not in the ways outsiders think. 

Many in traditional finance and the mainstream media view crypto as a monolithic industry. Yet that’s wrong — the blockchain proposition is divided into myriad sectors, and DeFi, predicated on the purest application of decentralized governance, is structurally and practically different from the FTXs, Binances, and Celsisuses of the world. 

“Not your keys, not your coins,” has long been a catchphrase to highlight that a person must own the cryptographic keys which enable access to their digital assets in order to truly claim ownership of them. 

Yet despite the catchphrases promoting self-custody and hardware wallets like Ledger’s, players like BlockFi, Celsius, and Voyager Digital, became major forces during crypto’s last bull run despite controlling customers’ private keys. 

Withdrawals

BlockFi, Celsius, and Voyager, have all suspended customer withdrawals this year, implying simply that the company did not have the deposited assets on hand. 

FTX joined these companies last week in halting withdrawals, but its failure to produce customer funds is surprising due to its coziness with deep-pocketed financial institutions such as venture capitalists Sequoia Capital and Tiger Global. By embracing the practices of TradFi in buying naming rights to sports arenas and getting celebrities like Tom Brady to shill for its services, FTX championed the idea that crypto was finally mainstream.

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Amid all the mayhem of the last couple of weeks, a raft of global financial institutions have continued to execute research & development projects with blockchain-related technology. On Tuesday, Citigroup, Wells Fargo and other banks joined the New York Federal Reserve in a pilot project to put deposits on distributed ledgers.

And JPMorgan Chase, the No. 1 U.S. bank, highlighted the distinction between DeFi and CeFi.  

“While the news of the collapse of FTX is empowering crypto skeptics, we would point out that all of the recent collapses in the crypto ecosystem have been from centralized players and not from decentralized protocols,” said analysts in a report put out by the company this week. 

Self-Custody

Now the drive to get crypto users to take self-custody of their assets may have truly begun, and if the industry is going to quickly overcome the FTX disaster it will have to provide utility and ease of use to average consumers. 

Maybe the DeFi migration Nansen measured in the last week is the first step in that journey.