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DeFi incentives drop leading to a decline in Ethereum DEX volumes

Photo of: Dennis Ramos
by Dennis Ramos

A notable aspect that has emerged from the data compiled by crypto metrics tracker Dune Analytics has rounded up that Decentralized Exchange(DEX) volume on Ethereum is on a continual slippage mode over the last month. In addition to this, despite ETH’s price going on an upwards spiral, the incentives for DeFi products have been on a downward note. 

Dune Analytics has compiled that the total volumes on Ethereum-based decentralized exchanges have indeed fallen down in the month of October. The drop has been more than 41% in the last 30 days and it is substantial enough to be noticed. Going a little behind, weekly trading on DEXs reached a high peak of more than $8 Billion on August 31’ st before recording a monthly high of $6 billion on September 14th. But ever since trading volumes have recorded a consistent decline. During Mid-October, the trading volumes were just under $3 billion and as per the analysis of Dune, the volumes have fallen by more than 62% ever since the DeFi summer ended on a huge high. 

Source: Dune Analytics

The above give illustration is a small snapshot of DEX metrics with three important indicators to take note of. The volume in the last 24 hours shows a figure close to $5060 Million which is less than the 7-day average of $7,672 Million. In the last 30 days, the DEX volume was $14.94 Billion. If the daily volumes are not even close to the 7-day volumes taken every day and in that case every few minutes, the clear case of plummeting trading volumes is explicit. 

Source: Dune Analytics

The above-given bar chart is yet another interesting analysis of monthly DEX Volume grouped by year. The blue bars represent the year 2019 while the red bars are for 2020 As we can see the momentum picking up this year from the month of July, maintaining the growth stance in the next months, and breaking records in the month of September. The September DEX trading volumes have been record-shattering, the best month recorded so far, and way superior in dominancy compared to its 2019 counterpart. Going ahead to the next month, which is October, the difference cannot be ignored because the difference is close to $10 billion!

The use of DeFi and DEX has soared in its popularity beginning from the month of June. User interest has exponentially increased partly due to the benefits it gave and partly due to the pandemic. Novel concepts like yield farming excited the investments and gave them multiple opportunities to earn passive incomes. Investors contributed their savings and investments in billions into different DeFi protocols while the exchanges were coerced to offer attractive incentives to remain competitive. The decline in sustainable incentives has coincided along with a general decline in DEX usage despite Ethereum price climbing up. 

Johnson Xu, director of research at Huobi said:

“One of the major reasons is that people are not earning as much yield right now, just because these crazy ‘yields’ are not sustainable, and often comes with significant risks.”