DeFi Users Jump But Boom is a Mirage: Chainalysis

Ever since FTX halted withdrawals and filed for bankruptcy last week, several DeFi protocols have enjoyed surging transaction volumes and fee revenue.

However, FTX’s collapse has not spurred a rush to self-custody, according to research from blockchain analytics firm Chainalysis.

Instead, increased activity on decentralized finance platforms can be attributed to “one industrious MEV bot” — an automated program that aims to profit by front-running pending transactions — and existing DeFi users, Chainalysis argues.

On Monday, leading decentralized exchange Uniswap hit $1.1B in volume, second only to Binance and ahead of Coinbase, according to its founder, Hayden Adams.

Volume on dYdX, the largest DeFi derivatives exchange by volume, exceeded $3.5B on Nov. 8, its highest level since May, according to data from Token Terminal. Trading volume on GMX, a derivatives exchange on the Arbitrum and Avalanche blockchains, more than doubled to above $1B between Nov. 6 and Nov. 7.

“There’s evidence of people prioritizing self-custody, at least for this moment,” Martin Lee, an analyst at crypto data platform Nansen told The Defiant earlier this week. And sales at hardware wallet manufacturer Ledger – popular with those who value self-custody – hit an all-time high Tuesday, according to the company’s chief experience officer, Ian Rogers.

Chainalysis says that isn’t what’s driving volume on DEXs, however.

“CeFi-to-DeFi flows have increased, but they’re not the driving force behind DEX tx volume growth,” the firm said on Twitter Thursday. “Roughly 90% of funds going to DEXes are coming from other smart contracts.”

MEV Bot Accounted For $19B

The single biggest source? That industrious MEV bot.

“This particular MEV bot has sent just under $19 billion to DEXes since November 4, making it the third-biggest source of funds sent to DEXes among all smart contracts,” Chainalysis said.

Rather than new users seeking security in self-custody, the data suggests that the recent spike in DeFi activity came from “existing DeFi users trading on the volatility in the market,” and that MEV bot “attempting to front-run them,” concludes the firm.