Coinbase: DeFi Growth Spikes as Crypto Shifts to Web3 Technologies

Decentralized exchanges gathered over $1 trillion in cumulative volume during 2021


Blockworks exclusive art by Axel Rangel


key takeaways

  • The total value locked across layer-1 protocols jumped 1,237% from $18.7 billion at the beginning of 2021 to about $250 billion by year-end, according to DeFiLlama data
  • Uniswap accounted for the “lion’s share” of volume with $779 billion traded on its protocol

The number of clear-cut use cases for cryptocurrencies ballooned last year in a trend Coinbase expects to continue in 2022 — especially when it comes to DeFi, NFTs, the metaverse and play-to-earn gaming.

“We’ve now started to see the real use cases start to emerge, compared to a lot of old rhetoric that people rely on about Bitcoin and store of value,” David Duong, Coinbase’s head of institutional research, told Blockworks. 

In the exchange’s institutional arm’s “2021 Year in Review,” Duong said an area to watch is the U.S. regulatory landscape, which is “primed for more clarity in 2022.” Meanwhile, the move toward Web3 technologies is accelerating, he said.

“Well now we have a completely different environment we’re seeing new layer-1 chains and networks being developed, hosting a number of programs and platforms that really are going to represent a new shift for the world away from Web1, Web2 to a Web3 world,” Duong said. 

The total value locked (TVL) across layer-1 protocols jumped 1,237% from $18.7 billion at the beginning of 2021 to about $250 billion by the end, according to DeFiLlama data.

The majority of the TVL is pooled into lending and borrowing protocols such as Aave or Compound, as well as decentralized exchanges like Uniswap and Curve, according to Duong.

Duong expects volatility to persist as crypto remains in the nascent stages of Web3 adoption.

As of Jan. 25, the total TVL on DeFi protocols declined about 19% from the end of 2021 to $201.9 billion. 

“Overall it’s still a growth number. These things will fluctuate like anything in the world — there’s no straight linear growth,” Duong said. 

Decentralized exchanges (DEXs) gathered over $1 trillion in cumulative volume last year, with Uniswap taking “the lion’s share,” the report found. For reference, the Uniswap protocol has traded over $779 billion across 86 million trades, according to its website.  

Though DEX trading volumes typically trail centralized exchanges, there have been instances where Uniswap surpasses Coinbase in trading activity. 

Duong declined to share projections for DeFi protocol TVL levels for 2022, but said, “I do think it’s going to continue to grow. The space as a whole has a lot of opportunities still with DEXs, AMMs, and liquidity pools, which are in their initial stages.” 

He expects more users to turn to DEXs like Uniswap as the yield possibilities of liquidity pools rise and there’s less concern about token volatility. 

“If you look at Uniswap and returns from liquidity pools compared to traditional finance, those yields are very attractive and people are starting to realize that more and more,” he said. “That search for yield has definitely benefited crypto and Uniswap is evidence of that.”.

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