Exploring the DeFi wave based on blockchain industry from MetaMask_s popularity.

2021-05-11, 06:02

Metamask is one of the most popular Ethereum wallets and provides users with easy access to smart contracts on Ethereum, making it convenient to participate in decentralized projects such as DeFi and NFTs. From October 2019 to October 2020, MetaMask saw a 400% increase in monthly active users. From October 2020 to April 2021, monthly active users skyrocketed by 500%.

MetaMask's rapid increase in users is linked to the surge of investors flocking to DeFi projects. The correlation between the two can be interpreted in two ways: first, clear synchronization between the growth curve of monthly active users on MetaMask and the increase of DeFi's total market capitalization, both showing almost identical trends; second, in terms of online attention, the search trends for keywords like DeFi, MetaMask and Uniswap (flagship in the DeFi projects) are almost identical. MetaMask’s correlation coefficient with DeFi was 0.75, with Uniswap 0.88. They all show that there is clearly a positive correlation between the attention of MetaMask and the attention of DeFi projects.

MetaMask Monthly Active Users
Data Source: MetaMask
https://consensys.net/blog/metamask/metamask-surpasses-5-million-monthly-active-users/

Change of Total Market Capitalization of DeFi Tokens
Data Source: CoinGecko

Google Trends of Defi MetaMask Uniswap
Data Source: Google Trends

The unprecedented popularity of DeFi projects is the ultimate driver of MetaMask's rapid user growth. This article aims to provide an in-depth analysis of the current DeFi market landscape and the overall DeFi boom.

Rapid Growth and High Returns

The shift in investor attention has made DeFi tokens one of the strongest growing investment branches in the blockchain industry during the first quarter of 2021. According to CoinGecko, the growth rate of DeFi projects' total market capitalization has surpassed that of ethereum and bitcoin in Q1 2021, reaching 548.30%.

Overall, both DeFi tokens and cryptocurrency yields on DEX platforms( decentralized exchanges) remained at a high level in the first quarter of 2021.

Top 5 DeFi Tokens in Terms of Yield in Q1 2021
Data source: CoinGecko2021 Q1 Digital Currency Industry Report

The first quarter of 2021 was a bullish period for the digital currency market. DeFi's high yield formed part from the bullish trend , outperforming bitcoin and Ethereum for quite some time indicates that investors are devoting extra attention to the DeFi tokens.

A Market Dominated by Ethereum

DeFi is a decentralized and unsupervised smart financial contract based on blockchain technology.The initiation of a DeFi project requires more complex rules and algorithms, requiring scalability and Turing completeness on a public chain which they depend upon. This also means that DeFi projects are not suitable to be developed on bitcoin’s blockchain. Ethereum is one of the more popular public chains for DeFi development. According to Debank data, GVL on Ethereum reached 68.32%. According to CONSYS' Q1 2021 DeFi Report, the number of users holding the DeFi protocol on Ethereum reached 175,700, a tenfold increase over last year.

In all DeFi segments, Ethereum applications have a clear lead. Current DeFi tokens can be generally divided into several categories:DEX,STABLECOIN, LENDING, ORACLE, etc. In different categories, the corresponding projects on Ethereum have considerable advantages in terms of scalability.

Furthermore, the vast majority of applications with competitiveness and scale advantage are applications on Ethereum, some of which have already shown significant disconnected development advantages and distanced themselves from homogeneous applications.

Another noteworthy phenomenon is that the price of Ether and the scale of DeFi tokens tend to move in the same direction.

Graph of the Change in Ether price and GVL of DeFi tokens on Ethereum
Data Source:CoinGecko& Debank

While there may be endogeneity in the synchronization of the two movements, the fact that Ethereum has a more stable growth trend than bitcoin after 2021 does have to do with Ethereum's better scalability. Compared to bitcoin, Ethereum has a much wider scope for scaling. As the base public chain on which the DeFi tokens relies, Ether is bound to be accepted by more participants.

BSC is Catching up Fast

Despite Ether's unique advantage in DeFi, the Binance smart chain (BSC), launched by Binance, is catching up with Ether at a surprisingly fast pace. BSC launched in April 2019 by Binance, a digital currency centralized exchange. Initially Binance issued BSC with the aim of expanding a market for decentralized digital currency trading, rather than putting a direct competitor to Ether. But after 2021, DeFI tokens on BSC grew by leaps and bounds, challenging Ether's dominance.

GVL of DeFi Tokens on BSC
Data Source: DeBank

GVL of DeFi tokens on BSC increased to $3,540.9 million from $405.5 million on January 1, 2021, a growth rate of 7,119.07%. The incremental volume of DeFi tokens on BSC largely contributed to that of total DeFi scale in Q1. In terms of incremental percentage, BSC has overtaken Ether. In particular, on BSC, the decentralized exchange PancakeSwap overtook UniswapV2 with the highest market capitalization. In the meanwhile, Venus also overtook Maker on Ethereum as the second largest DeFi lending application. In particular, BSC's compatibility with EVM (Ethereum Virtual Machine) allows smart contracts running on Ether to be migrated, greatly enhancing BSC's adaptability and compatibility and providing software support for BSC that will accept more native platforms on Ether.

Other Public Chains Are Ready to Go

As DeFi tokens develop, many blockchain developers have started to march into the blockchain ecosystem based on public chains. Developing and promoting their own public chains are the cornerstones of building a blockchain ecosystem, so that Ether and BSC are not the only public chains that investors and project designers can choose from in the market. Public chains developed by independent organizations such as Fantom and Solana, and by exchanges such as GateChain are competitors to both of them in the market. Compared to other public chains, Ether is at a disadvantage in terms of processing speed, transaction fees and transaction latency. Although the head of EtherChip has publicly proposed to revamp EtherChip, build EtherChip 2.0 which includes migrating the current PoW working mechanism to PoS working mechanism, the update time will take two years. The success of BSC, on the other hand, demonstrates to other public chains that DeFi token participants are not particularly dependent on Ethereum and that users can easily choose public chains on other platforms. Ether's monopoly may be only temporary.

Gas fees are the main issue holding back the growth of DeFi Ethereum. According to CONSYS, the median fee for Ether mining (the fee paid to the network by Ethereum users based on their actions) increased from about 100 Gwei at the beginning of the year to about 150 Gwei on March 31, and the Ether price rose by 50%. During the same period, the price of Ethereum also rose from $732 to almost $2,000. The rise in mining fees and Ether prices led to an increase in average trading fees from $5.40 at the beginning of the year to $22.90 at the end of the first quarter, an increase of about 4.2 times. The Umbrella Network, the Oracle on Ether, claims that moving programs from Ethereum to BSC will reduce trading fees by more than 90%. Other public chains, including BSC, have also noticed the shortcomings of Ethereum and have come up with solutions to current Ethereum problems, so as to promote their own public chains to investors and project designers with high efficiency and low transaction fees as their main selling points.

In addition to high efficiency and low transaction fees, each public chain has also started to emphasize their own unique competitiveness. GateChain, for example, emphasizes security and has proposed and improved many innovative technologies to enhance the security of users' assets on the chain, including Normal Account, Vault Account, Retrieval Account, Clearing Height and Time for Revocable Transaction. HECO, on the other hand, plans to support a variety of virtual machines to provide developers with more development options.

These competitors are determined and competitive. The emerging public chains are not only trying to attract new users and projects, but also to take over native projects and users on Ethereum. GateChain announced in its white paper report that it will launch a complete set of cross chains to help users transfer their assets safely and quickly between different main chains. The cross chains includes: those for ERC tokens, for indiginous assets, and for both of them. On the protocol level, they include: GateBridge, a smart contract-based consensus cross chain, and GateHub, a consensus cross chain based on the Gatechain consensus node cluster. These technological innovations may change the competitive landscape of the entire public chain ecosystem in the future.

Conclusion

The rapid growth of MetaMask users can be attributed to the explosion of blockchain applications such as DeFi. Although the total value of DeFi tokens and the total number of users are not conspicuous in the blockchain industry, the rapid growth trend and the return to the concept of decentralization and deinstitutionalization still give people reason to believe that smart contracts such as DeFi will be a mainstream direction for the future development of the blockchain industry. Before the era of DeFi comes, there is bound to be competition between public chains. The public chain competition will not only impact the development of the DeFi tokens. The winning public chain may be a widely-accepted crypto coin just like bitcoin and Ethereum.

Author: Gate.io Researcher: Charles F.
*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.

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