The myriad of DeFi under market fluctuations: one wave leads to another

Author: Pzai, Foresight News

Yesterday, as global markets experienced significant turbulence, the crypto market was no exception. On-chain, the Ethereum ecosystem alone recorded over $350 million in liquidations in a single day. The "wave" in the market is triggering "thousands of waves" in DeFi, and how are DeFi projects responding? When the tsunami recedes, who is left swimming naked? Therefore, the author writes this article to summarize the performance of DeFi under market volatility.

Stablecoins

In the case of Ethena, its stablecoin USDe recorded a single-day outflow of $95.8 million yesterday, with the total supply dropping from a peak of 3.6 billion to around 3.1 billion. Due to Ethena's mechanism requiring long positions to be maintained at a high level, the potential liquidation of collateral as the market declines has led users to manage risks and subsequently redeem related tokens.

Additionally, the stablecoin USDB on Blast briefly depegged to a low of $0.937 yesterday. Due to the relatively closed ecosystem of Blast's stablecoin and the significant incentives provided by the project team for USDB during the early stages of the Blast chain, the impact of capital outflows during market fluctuations was substantial. USDB has now essentially re-pegged.

Lending Protocols

In terms of liquidation, the situation on August 5 was the most severe, with a total scale exceeding $350 million. By protocol allocation, Aave V3 had the largest liquidation amount, reaching $250 million. This was followed by Compound, with a total liquidation amount of $79.6 million. In Aave V3's liquidations, the focus was primarily on the liquidation of major Ethereum assets, with the top three being WETH, wstETH, and WBTC.

During market fluctuations, Aave also earned over $6 million in revenue.

After the liquidations, the overall liquidation line on-chain has fallen below $2,000. Due to the characteristics of the mechanism, bad debts are likely to occur during significant market fluctuations; for instance, Aave V3 generated $350,000 in bad debts over the past week. In contrast, Curve Llamalend avoided most hard liquidations due to its soft liquidation mechanism, with soft liquidations accounting for $50.24 million on August 5.

Overall, the response of lending protocols to this market volatility has been somewhat satisfactory.

Decentralized Exchanges (DEX)

In Uniswap V3, the peak on August 5 reached $840 million, generating $1.119 million in fees for LPs.

Regarding GMX, on August 5, the positions held decreased by about 30% compared to the previous day, liquidating $8.3 million in assets, primarily in USDC.

Re-staking

Re-staked assets, as one of the core assets of Ethereum today, also saw significant outflows under market volatility. For example, Renzo's staking token ezETH briefly depegged to a low of 0.876 WETH.

In terms of protocol outflows, taking ether.fi as an example, on August 5, a total of 79,013 ETH was withdrawn throughout the day, with a total value exceeding $100 million, most of which was the withdrawal of Eigenlayer's e ETH. With over 77,000 ETH in liquidity and a DeFi utilization rate of over 73%, the protocol does not face overall liquidity risk.

Overall, the withdrawal queue for Lido stETH has not shown significant growth, and the major LSTs on-chain have remained stable. Therefore, the re-staking ecosystem does not exhibit systemic risk.