The second quarter of 2021 was the biggest one yet for decentralized finance (DeFi) protocols on the Ethereum network.
From April through June, the number of Ethereum addresses increased 10%, according to the ConsenSys Q2 2021 DeFi Report released today, while the number of addresses that used a DeFi protocol expanded by 65%.
DeFi is the catchall term for blockchain-based protocols that remove banks and other intermediaries from financial transactions. With DeFi, sellers can swap tokens directly with buyers, holders can earn crypto for depositing funds, traders can take out loans, and speculators can make bets on price movements.
While DeFi applications are available on a handful of networks, including Binance Smart Chain and Solana, they started on Ethereum, where the lion’s share of use remains. There are nearly $70 billion in assets tied up in DeFi protocols, per DeFi Pulse.
“As community driven education, simple user interfaces, appealing yields, and general awareness around DeFi best practices increased throughout the quarter, so too did the number of new addresses,” wrote software development firm ConsenSys (which provides funding to an editorially independent Decrypt). It went on to note that users can have multiple addresses.
All told, by the beginning of July, 2.91 million Ethereum addresses had interacted with DeFi protocols such as decentralized exchange Uniswap, crypto lender Compound, or liquidity fund KeeperDAO.
Abetting DeFi’s big boost in the first half of 2021 was a massive increase in stablecoin supply, which stood at $65 billion by the start of July. That marks a 60% increase in the dollar-pegged assets since March 31. Leading the way was Tether, which accounts for nearly half of all stablecoins on Ethereum. USDC is also widely used—according to ConsenSys, nearly one-quarter of USDC is in DeFi lending protocols.
The benefit of stablecoins is that they can be bought with dollars then traded for other cryptocurrencies without having to dip back into the traditional financial system. As crypto prices surged and swooned last quarter, speculators and investors could hold onto stablecoins while they waited for the right time to enter the market.
We’re already over a month into Q3, which hasn’t been as rosy as Q2 during its peak. The amount of funds locked into DeFi protocols has just inched back toward where it was in early June. The same goes for the price of Ethereum, the strength of which is correlated with network usage.
And with the Ethereum community’s eyes set on this week’s London upgrade, which will change how transaction fees are structured on the network, many will be anxious to see whether that spurs additional DeFi growth this quarter.
