The latest data from Messari, a crypto research firm, reveals the slump in cryptocurrencies has not spared DeFi (Decentralized Finance). While overall, Q2 2021, DeFi trade volumes continued to rise, trading slumped from $203.5B in May 2021 to $95B for June 2021.
Binance Smart Chain (BSC) has been hit hardest by this recent slump. In what comes down to a battle of the DEXs, PancakeSwap’s rally since March 2021 took a huge knock in the last month of Q2. This coincided with the introduction of Uniswap v3 and the rise of Ehereum scaling platform, Polygon.
The Messari report lays out how the situation flipped:
“While for a brief moment in April the breakfast themed DEX flipped Uniswap in volumes, since then its market share has plummeted due to the rise of Uniswap V3 and the fizzling out of the Binance Smart Chain Ecosystem following the May crash. By the end of the quarter Uniswap reached a 54% share of weekly volume, its highest level since November 2020.”
– Q2 2021 Report, Messari
The “crash” refers to a series of hacks across the BSC network that has led to losses worth hundreds of millions in dollars.
The emergence of Polygon as a solid layer 2 solution, with its much improved user experience, drew in users and projects alike. As the party shifted towards Polygon, with its new set of tokens to speculate on and farms to harvest, BSC was squeezed out of the picture.
In an assesment of the reasons to explain the shift in the DEX ecosystem, the report says:
“The activity provided a great glimpse into the developing liquidity wars between blockchains, showing that when token incentives are the primary reason why capital enters a blockchain ecosystem, it will also be the primary reason capital leaves when incentives fall or incentives are more attractive elsewhere.”
Token incentives are used to encourage speculators to a DEX by offering tokens that may become profitable in future, or that let holders participate in the governance of a platform, or that can be staked to earn rewards.
Besides these issues on its decentralized platform, Binance is currently beset by mounting scrutiny from regulators in places like the United States, U.K., Japan, and Singapore. Authorities are concerned that the exchange is not taking effective measures to prevent illegal activities on its platform.