DeFi TVL Bounces Back Even as Active Users Decline in Q1

Ethereum and its Layer2 ecosystem took the lead.

Total assets deposited in decentralized finance rebounded this past quarter, despite the number of daily users slumping by double-digits.

DeFi’s TVL rose by over 37% in three months to tag $83.3B while the number of unique wallets interacting with DeFi applications each day fell by nearly 15% over the same period, compared with a 10% drop in web3 dapp users overall, according to DappRadar’s Q1 2023 Industry Report.

The report noted increasing interest in scaling platforms and the price of ETH contributed to the growth in the TVL. 

The rise in popularity of scaling solutions like Arbitrum, Fantom, and Optimism have contributed to the rise in DeFi TVL, DappRadar said, with the much-expected Arbitrum airdrop as one of the main drivers for trading activity. 

The failing of U.S. banks and subsequent USDC de-pegging led to a TVL drop of just under 10%. But the market stabilized quickly after depositors were able to recover their funds.

Users Converge On Ethereum

Ethereum and its Layer 2 ecosystem grew at at the expense of rival Layer 1s networks in the past quarter. Ethereum has strengthened its position as the leading smart contracts platform, accounting for 67% of total DeFi TVL.

Daily active users on Ethereum grew 55% to 126,000 from 81,000 quarter-over-quarter, while Polygon users increased 25% to 197,000 and Arbitrum users proliferated 125% to 46,000. Ethereum now represents two-thirds of DeFi TVL.

The spike in L2 activity was driven by anticipation for Arbitrum’s airdrop and the mainnet beta launch of Polygon ZkEVM, Polygon’s new zero-knowledge rollup. However, the daily user base for Optimism, the second-largest L2 by TVL, shrank 21% to 26,000 in Q1, despite its TVL surging 85% over the same period.

By contrast, BNB Chain daily users fell 28% to 449,000, while Solana posted a 40% decline to 74,000, and Eos slumped 22% to 27,000.

BNB Chain accounts for nearly 21% of DeFi TVL. BNB Chain’s top dApp, PancakeSwap, is the most popular DeFi protocol with 1.37M wallets interacting with it in March.

NFTs Bounce Back 

Nonfungible tokens were among the strongest performing web3 sectors of the past quarter, with trade volume rocketing to $4.7B after bottoming out at $1.9B during Q4 2022. The total number of sales also increased by 8.5%.

DappRadar noted the liquidity mining rewards offered by the upstart marketplace, Blur, likely inflated volumes at the start of the year. Blur drove $2.7B in trades for the quarter, compared to OpenSea’s nearly $1.5B.
“While Blur’s rise to dominance is impressive, the marketplace needs to be careful in how it manages its user base and perceives its loyalty,” the report said. “Token farming is not a new concept, and it would be a mistake for Blur to presume that the wallets driving its phenomenal rise right now will do anything but jump ship if another platform offers them a better financial incentive to do so.”

Nearly 90% of NFT sales volume took place on Ethereum, followed by Solana, Polygon, and Immutable X.
The CryptoPunks NFT collection enjoyed a spike in volume of more than 10 times, driving $241M worth of sales. Collections from Yuga Labs represented more than a third of total NFT volume.

NFT applications hosted 8% of total dApp users, posting a slight increase of 0.2% compared to Q4 2022.