ON–040: DeFi

This is issue #40 of the on-chain analytics newsletter that reaches nearly 5500 crypto investors every week 📈

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This week our contributor analysts cover DeFi: Terra, Compound, and Set Protocol.

• After being live now for 17 months on mainnet, Terra has established itself as an attractive source for non-dilutive revenue for validators. Currently, 54 validators from 18 nations provide security to the Terra network, with a fairly even distribution between North America, Europa, and Asia.

• Terra continues to have a robust staking ecosystem. Peak delegation activity since Columbus-3 was launched occurred in the week of June 14, 2020, when 35 million LUNA (~$10.5m at today’s prices) were bonded. Total delegations have increased from 172 million LUNA in December to now over 298 million LUNA, an increase of 73% in delegated tokens.

• A significant concern for any Proof-of-Stake network is the concentration of delegations with just a few validators. Monitoring the voting power of the top validators in comparison to the whole network is therefore crucial. Low commission rates can quickly concentrate a lot of delegation power - not only is this important for 51% attacks, but also for governance, which requires a 30% quorum. Terra has, therefore, made it a high priority to promote new validators and those with little delegation. The result is that the concentration of the top 10% and the top 20% of all validators has continuously declined over the last six months.

• An active and engaged validator community is crucial for the security of a PoS network and for building out the necessary tooling infrastructure. Terra has supported these efforts with a few grants. Here are a few examples:

  • Due to the immense activity on the Terra network, it is very challenging to synchronize a new validator. An archival node for Terra requires almost 1 TB of data already. ChainLayer has built Quicksync, a tool to download the latest snapshots to solve this problem. 

  • To monitor the purchases happening via Terra and specifically the Chai wallet, DSRV Labs has built ChaiScan, an explorer for anyone interested to dive deeper into merchant-specific data.

  • Infura is an incredibly important tool for any Ethereum developer, and Figment is building something equivalent for Terra, DataHub.

  • Monitoring delegations and large fund movements can be a crucial tool; DSRV Labs has built LunaWhale to do precisely that.

• Total outstanding borrowing on Compound is currently at $978M and trending back towards the $1B mark, as volumes increased 54% in the last 2 weeks; 86% of the total borrowing is concentrated in DAI, followed by 7% in USDC and 4% in ETH. Following a recent governance update on September 21st entitled “Upgrade cUSDC Interest Rate Model”, all stablecoin markets on Compound have the same JumpRateModelV2 interest rate model and therefore have the same interest rates at each utilization rate. (Sources: LoanScan, Compound)

• As a result of the ongoing COMP distribution to protocol users, 38,189 unique Ethereum addresses now hold voting power in the form of the COMP token. Approximately 2,312 COMP are being distributed to users every day, a 20% reduction from the original 2,880 due to the governance proposal entitled “Reduce COMP emissions by 20%” that was executed on August 31st. This decentralization of voting power into the hands of tens of thousands of users is a critical step for the protocol to have a robust, community-owned governance system. (Sources: Nansen.ai, Compound)

• A significant majority of COMP holders hold less than 100,000 COMP, which is the amount of delegated COMP-votes needed to formally propose a protocol upgrade; however, 225 addresses hold at least 100 COMP. With the launch of Compound Autonomous Proposals (CAPs), any user with 100+ COMP may create a proposal template, seek the delegation of 100,000 total COMP-votes, and make the CAP eligible to transition to a formal proposal. Create your own CAP by visiting the vote page of the app, or delegate your support to an active CAP - for example, Set Pause Guardian to Community Multi-Sig. (Source: Etherscan)

• The average collateral ratio for borrowers has dropped dramatically since the launch of the COMP token distribution on June 15th. In the months leading up to the distribution, average collateralization of borrowing on Compound tended to be between 400-600%; after the sharp market drawdown on March 12, average collateralization actually climbed above 800% as borrowers sought to avoid liquidation risk. Since the COMP distribution began, the average collateralization ratio has dropped down to ~180%. This dramatic shift reflects how changes in incentives can significantly alter the overall behavior of a protocol’s users. (Source: LoanScan)

• Over the past year, USDC on Compound has had an average supply APY of 2.94%, exclusive of any additional COMP yield. This rate is roughly 58x higher than the average US savings accounts of 0.05% APY and provides an opportunity for innovative crypto and fintech companies looking to offer high-yield checking/savings accounts. Borrowing rates for USDC over the past year have averaged 7.48% APY, with a max of 12.06% and min of 2.52%. (Source: Compound Rates, SmartAsset)

• A few days ago we released the new DeFi Pulse Index Set in partnership with DeFi Pulse on TokenSets. One of the main goals of this index was to allow for increased access to DeFi tokens for those who are priced out due to the high gas/transaction fees on Ethereum. Instead of users having to buy 10 different DeFi tokens and incur high gas costs, they can simply purchase this index on TokenSets or Uniswap and only incur 1 transaction fee. This has led to the DeFi Pulse Index growing to $1.5 million in market cap and being held by over 1,000 unique addresses in just a few days.
• The distribution of Set holders by dollar values continues to remain healthy with most Set holders holding between $0 and $10,000 worth of Sets. Around ~200 addresses hold between $10,000 and $100,000+ worth of Sets. (Source: Scout)

• Cumulative Set purchase and sell volume reached over $100 million this month which marks a big milestone for the protocol. This is $100 million that has passed through multiple versions of Set Protocol’s smart contracts to buy and sell various Sets over the last ~18 months (Robo & Social Sets and our original range-bound and buy & hold Sets). (Source: Scout)
• Visits to TokenSets by country is always an interesting metric to look at as it is constantly evolving depending on where we focus our marketing efforts. A few months ago, we focused them on China which meant that China was hovering around at #2 and #3 on the list. These days, China is at #7 with the U.S. and U.K. dominating at #1 and #2 respectively (which is the normal state). If we compare this to visits to the site based on language, we can clearly see that English dominates but Chinese, Russian, and French are not far behind.