DeFi On-Chain Trading Activity Declines, Returning to Long-Term Baseline Levels Since September 2020

Let's first review this week's Bitcoin market movements. On June 7th local time, the Federal Reserve's overnight reverse repurchase facility absorbed $48.6097 billion from 46 participants, setting a new record. The surge in overnight reverse repos aligns with market expectations for the Fed to taper bond purchases. Stimulated by this news and combined with other bearish factors, Bitcoin price experienced another pullback of over 10% in the first two days of the week. Subsequently, following El Salvador's announcement to adopt Bitcoin as legal tender, it recorded a 14% gain on Wednesday, basically recovering the losses from the previous two days. However, overall, Bitcoin price this week remains in the consolidation range of $31,000-$39,000, and the continued sluggish market also reflects, to some extent, the low sentiment among market investors.

Bitcoin price, source <a href= OKX ">

Bitcoin price, source OKXOKX

Of course, weak market conditions and subdued investor sentiment are not only reflected in the Bitcoin market. The Ethereum ecosystem that has flourished over the past year, especially the DeFi sector, has also not been immune. According to a recent report by Glassnode Insights, Ethereum transfer volume has dropped by 60% within two weeks. While there's still a significant gap compared to the 95% decline in 2018, it's too early to say whether this subdued demand is temporary or a trend that will continue. The market's future direction remains to be seen.

Ethereum on-chain transfer volume changes, source Glassnode

In the DeFi sector, looking at Total Value Locked (TVL) data, the current Ethereum-based locked value is $59.47 billion, a 27.2% contraction from $81.69 billion in mid-April.

Current DeFi TVL, source defipulse

To gain a more intuitive understanding of recent DeFi sector conditions, we selected Uniswap, the leading DEX, as an example to analyze by observing its on-chain transfer volume changes and value transfer changes.

Uniswap on-chain transfer count changes, source Glassnode

The chart above shows the Uniswap on-chain transfer count curve. It can be observed that over the past three days, this metric has remained below 5,000, basically flat with November 2020 levels.

Uniswap on-chain transfer value changes, source Glassnode

Similar to the trend in Uniswap on-chain transfer count, the transfer value on this DeFi protocol has also shown a declining trend recently. For instance, on June 10th, the full-day on-chain transfers were only 8.69 million UNI , also returning to late November 2020 levels.

Let's also look at Uniswap's on-platform trading situation. Recently, both Uniswap V2 and the newly launched V3 have seen significant declines in trading volume. First, let's look at Uniswap V2 data.

Uniswap V2 Liquidity and trading volume, source v2.info.uniswap.org

As of June 11th, Uniswap V2 Liquidity was approximately $4.95 billion, a 50% reduction from $9.98 billion on April 28th. In terms of trading volume, the last 24-hour trading volume was $583 million, only 16% of the $3.59 billion record set on May 19th. Of course, this includes both market impact factors and diversion from the V3 launch. Let's now look at Uniswap V3's situation.

Uniswap V3 24H trading volume, source info.uniswap.org

From the chart above, it can also be seen that since May 19th, Uniswap V3's trading situation has similarly shown a downward trend, with recent 24-hour trading volume at approximately $926 million, a decline of over 60% compared to $2.61 billion on the 19th of last month.

Synthesizing the above data, it can be found that since peaking in mid-May, Uniswap's daily trading count and trading volume have both experienced varying degrees of decline, while demand for UNI has slowed. Uniswap's daily trading volume has now returned to the long-term baseline since DeFi's rise in September 2020. Although the indicators we used above are simple and primitive, at this stage they still serve as an important reference for measuring the level of retail investor sentiment.

Of course, along with the significant cooling of DeFi on-chain trading activity, we've also observed welcome changes in Ethereum trading fees. According to OKLink monitoring data, the daily average gas fee on Ethereum has dropped below 30 Gwei in the past two days, with only 16.47 Gwei on June 6th. By comparison, during the first DeFi boom on September 2nd, 2020, the daily average fee once reached 514.54 Gwei, and on February 23rd, 2021, it also recorded a high fee of 413.97 Gwei. Compared to these two highs, current fee levels have declined by 95% and 93% respectively.

Ethereum network daily average gas fee, source OKLink

Ethereum network daily average gas fee , source OKLink

This means that if conducting Ethereum transfers or participating in DeFi on-chain interactions recently, fee expenditures will be significantly reduced. The situation of frequently spending hundreds of dollars in fees during last summer's "DeFi Summer" has been greatly alleviated.

Although current Ethereum network fees have seen significant declines, on the other hand, returning to the topic of whether the bull market can continue, which market investors are generally concerned about, this information seems to have more "bearish" characteristics. In the previous article "Market Bulls and Bears at Standstill, Price Action Once Again at a Crossroads ", we discussed on-chain trading activity during bull markets from multiple dimensions. It is generally believed that in the crypto market's bull market process, a notable feature is that market participants are more sensitive to on-chain trading , value settlement, and miners' block packaging speeds—that is, participants generally hope to conduct trading at faster speeds and are willing to pay higher than usual trading fees for this. This is both the result of increased investor demand and the motivation for early profit-takers to sell their held crypto assets at higher prices.

Of course, this is merely a preliminary judgment of the future market based on technical factors, while the factors that ultimately determine market trends often lie beyond these simple technical aspects. As mentioned in the article "Market Bulls and Bears at Standstill, Price Action Once Again at a Crossroads", "All indicators are just the tip of the iceberg among numerous analytical tools in the crypto market, and each is not perfect, existing defects and controversies. The only indisputable fact is that we have indeed entered a consolidation period, and this is a moment of intense bulls versus bears gaming."

This assertion applies both to the current crypto market and to the DeFi market. After all, DeFi's development is closely related to the crypto market's development. As an unprecedented social finance reform experiment emerging from the crypto world, DeFi's development over the past several years, especially the past year, has preliminarily verified this reform's innovation and forward-looking nature. Like many important transformations in history, it cannot be smooth sailing and will inevitably undergo various tests. However, what needs to be believed is that as long as we're on the right path moving toward the right goals, then from a higher dimension perspective, current setbacks are merely passing clouds.

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