DeFi Usage Numbers

The most popular metric right now for DeFi adoption is total value locked (TVL), shown on trackers like DeFi Pulse. TVL is a good metric for projects that have just launched and are looking to bootstrap liquidity. After all, automated market makers like Uniswap and money market platforms like Compound aren’t very useful without a critical mass of liquidity.

But TVL in isolation is an incomplete metric. First, TVL denominated in USD is a bit misleading and is often driven by fluctuations in the price of ETH. Moreover, for projects that lock collateral in ETH and a stablecoin like DAI, TVL denominated in ETH actually increases when the ETH price goes down because the DAI/ETH price ratio gets larger, and vice versa.

More importantly, it’s an open secret that DeFi usage is very whale heavy, or that a handful of users are responsible for the vast majority of usage. A single MakerDAO CDP holder #3088 has 127,274 ETH as collateral, 17x the amount of collateral as the next largest CDP holder. Three users are responsible for ~80% of all user deposits on InstaDApp. These are just two examples of extremely unequal distributions of usage, and there are countless more.

Whale heaviness is bad because TVL is artificially inflated by a small number of power users. The DeFi ecosystem is dependent on them to provide the vast majority of liquidity and collateral for different projects, making DeFi less decentralized.

Thus, we need to look at the total number of users to complement total value locked and provide a more holistic view of DeFi adoption.

Why is total number of users a good metric? For the last two years, it’s been an open question of when and how DeFi will cross the chasm and reach mainstream adoption. Most people would agree that “mainstream adoption” means not “billions of dollars locked in smart contracts” but rather “how many ordinary moms and pops are using this product.” Coinbase, an $8 billion company, has reached mainstream adoption because it has over 30 million users.

Below I compiled data on the total number of users over time, measured as unique addresses, for some of the top DeFi projects. Addresses are not a perfect indicator of users since many people, including myself, use multiple addresses. That said, you can discount the above numbers by however many duplicate users you think there are.

Since these graphs are cumulative, they will always be non-decreasing. To calculate daily new users take the first derivative of the graph, and to calculate the growth rate take the second derivative. You can also play around with the data on this dashboard.

Kyber

Measured as unique trader addresses.

Uniswap

Measured as unique liquidity provider and trader addresses.

Compound

Measured as unique lender and borrower addresses for v1 and v2.

May 23, 2019: Compound v2 launches.
July 24, 2019: Interest rate for lending DAI reaches nearly 15% APR.

OpenSea

Measured as unique buyer and seller addresses for NFTs.

September 1, 2019: The ENS short name auction starts on OpenSea.

MakerDAO

Measured as unique CDP holders for single-collateral and multi-collateral DAI.

July 26, 2019: Coinbase Earn launches the Generate Dai with Maker lesson, causing Coinbase users to create lots of small CDPs from the Coinbase Wallet.
November 18, 2019: MakerDAO Multi-Collateral Dai launches.

Creating CDPs is different than using DAI as a medium-of-exchange so here’s the growth in DAI usage.

Total unique addresses that have held Dai over time.

InstaDApp

Measured as unique InstaDApp accounts.

dYdX

Measured as unique lender, borrower, and margin trader addresses for v1 and v2.

April 17, 2019: dYdX launches the v2 solo margin trading.
April 20, 2020: dYdX launches the BTC perpetuals contract market.

1inch

Measured as unique trader addresses.

Synthetix

Measured as unique minter and trader addresses for all synths.

December 6, 2018: Synthetix rebrands from Havven and launches crypto-backed synthetic tokens.
March 13, 2019: Synthetix changes the monetary policy to increase SNX supply with additional SNX allocated as staking rewards.

Aave

Measured as unique lender, borrower, and flash borrower addresses.

January 8, 2020: Aave rebrands from ETHLend and launches a money market platform with flash loans.

0x

Measured as unique maker and taker addresses for v3.

December 2, 2019: 0x launches v3, a decentralized exchange liquidity aggregator API. v1 and v2 are protocols for DEX order books and thus are not included in the total user count.

Augur

Measured as unique traders across all prediction markets.

November 6, 2018: The US House midterm election market has over $3.3M in volume.

Nexus Mutual

Measured as unique cover, liquidity provider, and staking addresses.

February 14, 2020: The bZx attack occurs, causing Nexus Mutual to pay out over $30k in claims and $1.3M of new smart contract cover to be taken out.

Takeaways

To estimate the current total addressable market of DeFi, we can calculate the total number of unique addresses across all the above projects to get just over 150k users.

The current market size of DeFi is obviously small, but what’s more important is that there’s exponential growth in the number of users. We humans have a tendency to underestimate exponential growth, whether that be viruses or total users of a product. At the current growth rate (0.56% daily), we’d expect to see one million DeFi users by March 2021 and ten million by May 2022.

A common pattern across DeFi projects is that v2 launches or product changes cause a huge jump in new user growth rate. Upcoming launches, such as Augur v2 in June and Uniswap v2 in Q2 2020, will likely catalyze another surge in new users. The lesson here for early projects is that it only takes one feature to be massively successful to accelerate growth — so keep iterating until you build something users love.

About the author: Richard is a partner at 1confirmation, an early-stage crypto venture fund based in San Francisco. Sign up for the 1confirmation newsletter and don’t hesitate to reach out on Twitter.