A graph is worth a thousand words. Christian Crowley from alethio takes us through the evolution of the decentralized financial system emerging on ethereum through the visualization of users across DeFi protocols. From MakerDAO contract went live in 2017, to the inception of the DeFi meme in summer of 2018 when a small number of protocols operating largely in isolation. Watch the DeFi networks grows in size and complexity, transforming to a complex connected web.
Extending the analysis from major DeFi protocols to incorporate different DEXes, Chris showed the blurring lines of two subsets of DeFi primitives, and how older DEXes with large volume due to legacy reasons, operates more in isolation compared to the rest of DeFi.
Direct link to slides here. WTFdao has edited the abridged transcript below.
Hey everyone, my name is Christian Crowley. I’m here from Aleth.io. We are an advanced blockchain data analytics company focused on Ethereum. So we provide visualizations and analytics for Ethereum, we focused on DeFi over the past year, and I’ve seen a lot of really interesting developments over the past months, over the past half years so. Earlier you saw the visual around ETH locked in DeFi. It’s interesting visual you see a lot. I think it’s indicative of the size of the space, but it only tells part of the story.
So as we extended the analysis to more than just looking at individual protocols, you wanted to build a visualization of the actual network-connected user base.
Evolution of DeFi
We can watch this 30-second video to show the progression of growth over the past year and a half. You can see this is Maker here starting. It’s per month. Here we’re in July, August 2018. You’ll see Compound popping up, the V1 Auger. Moving into 2019 you see a lot of growth across each of these protocols. So what we’re seeing is each protocol has individual users that are only operating on that protocol, but these lines extended across indicate a shared user base. So, you’ll have users that are opening a CDP on Maker but then providing liquidity through Uniswap etc etc. So this visual is meant to show a connected ecosystem that has existed from the beginning, but often times it is lost when you have just individual metrics.
One metric I like to look at when considering the growth of the space, is looking at total or daily transactions of the major DeFi protocols, you’ll see them listed here against average other transactions on Ethereum.
You can see, towards the end of this past summer there was a spike. But the growth is relative to average daily transactions of Ethereum, and about 2,000 transactions per day. You can see it’s becoming a higher percentage of the overall network level transactions.
Another visual is users of the major platforms. And you can see here, each user type or each platform has a different user type performing different type of behavior so Uniswap you have traders, Maker you have CDP openers etc. So this shows a growth of overall individual users that operate not either / or on a protocol, but they operate often times across protocols.
This is in November 2018. It’s a bit clear here, you’re seeing a small number of protocols operating largely in isolation, there’s a couple shared users across Maker and Compound for example.
You flash forward to May 2018, again the picture grows in size and complexity. You have many protocols that are operating as a base for more than one more than two three users you see here these red dots here as well.
In August of this past year, it’s a connected web. you may have seen this on Twitter, but it’s showing a truly interconnected ecosystem where individuals are operating across a number of different platforms.
DeFi & DEX: blurring lines
And this past fall we wanted to extend the analysis even further. Instead of just looking at the top DeFi protocols, we realized we had to extend it into decentralized exchanges as well, as the line between what constitutes a DeFi platform and a DEX began to blur. DEXes were offering DeFi services and vice versa. So here it’s a bit small. But this shows, they’re connected ecosystem across DeFi & DEX. Now this is across just one week of activity, and each of these individual protocol layers here represents a certain user type or user profile. So this only captures Uniswap traders, this only captures makers CDP openers. Some of these protocols, you can have more than one action type. But when you run a better analysis here, and it’s tough to see.
Basically, we can isolate certain almost financial systems that operate in the space, the top left being the most evident and that’s the Maker and Oasis lending liquidity market. It’s almost an insular financial system by design.
Bottom left here are protocols that rely on Uniswap and Kyber for liquidity. And then you have your 0x relayer network here in the middle.
The older pure DEXes operate largely in isolation. They have high volumes, but they aren’t as connected to the DeFi ecosystem. So we believe as this system evolves further, you’re going to see stronger financial systems interoperating with each other as you’ve kind of seen here emerge right now and this is this past week.
Basically our goal from here, I mean these visuals are great way to demonstrate the connected nature of the ecosystem. We’re trying to build tools now to allow individuals to understand what does this mean from a risk standpoint, there was a great article about the bank run risk for Compound for example but again as these interconnections grow in volume. You’re going to perhaps see risks around derivative or structural risk looking at a connected ecosystem here as well.
Please contact@tzhen on Twitter for corrections.
DeFi.WTF Osaka was the first of a series of WTF events, traces the emergent DeFi stack and explores its implications through in-depth conversations with the space’s main actors.
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