Defi More Scalable Than Traditional Finance

According to a recent study, decentralized finance (defi) has proved its higher scaling potential than the traditional financial industry, despite the market conditions that dominated most of 2022. Some segments of the defi industry continue to “display a very optimistic trend,” even though the overall value locked fell from its peak of $180 billion in December 2021 to just over $50 billion by the end of October 2022.

Decline in Total Value Locked

Decentralized finance (defi) has the potential to be “many times more scalable than the existing financial industry,” according to the end-of-year report from Hashkey Capital. In addition to their potential for scaling, defi protocols are robust and are likely to survive black swan occurrences like the Terra Luna/UST collapse, according to the paper.


Hashkey Capital, an end-to-end financial services company for digital assets, admitted that unfavorable market conditions that mostly prevailed in 2022 contributed to the reduction in the total assets under control in the Defi Ecosystem Landscape Report report.

The general market circumstances were another factor in the decrease of the TVL, or Total Value Locked, which serves as a proxy for all assets managed by Defi. The value of the collaterals offered in Defi financing is also reduced due to decreased crypto prices (caused by generally unfavorable macro), which lessens the incentive to obtain a loan against such collaterals. According to the study, the volume of trading on DEXs [decentralized exchanges] and in cryptocurrencies has decreased.

The report’s data indicates that the TVL peaked at $180 billion in December 2021 and fell from just under $150 billion around May 2022 to just over $50 billion in late October. Despite this TVL reduction, the research claims that some Defi market segments continue to “display a highly promising trajectory.”

Defi Growth Slowdown

According to the analysis, there has been a decline in the growth rate of adoption in 2022 (31%) as compared to 2021 (545%). The research made the following observations regarding this result as well as the increase in wallets to over 5 million:

2022 can be seen as a year of consolidation where most projects are busy building and improving their products rather than spending their resources on marketing activities. 2022 is also the year when the UI and user experience of Defi protocols improved significantly, to a level that we can finally say that it’s easier to use some Defi protocols than using a home banking app.

According to the report, a large chunk of support for Defi protocols came from venture capital (VC) firms which poured “$14 billion into 725 crypto projects (many of those are Defi)” in the first half of 2022.

decentralized finance

According to the analysis, the derivatives and options market, where important platforms like GMX saw a “significant expansion in the number of users and TVL,” will likely cause the next defi summer. TVL increased from $108 million at the beginning of 2022 to $480 million by the end of October, according to GMX. Another company, Dydx, “generated over $50 million in revenue and continues to have over 1000 weekly active users,” despite having seen the price of its token collapse by 90% in a year.

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