Crypto in Q1; Prices & TVL Up, Hacks Down

Total value locked in smart contracts was up, but total active users were down, according to a DappRadar report. Also, hackers continued to find ways to drain cash from projects, but less so than in the previous quarter, according to Rekt. IOSG has a great in-depth report on the progress (and lack thereof) of derivatives DEXs. So far, it seems as though crypto is recovering from the 2022 bear, even as it continues to face blow after blow from U.S. regulators.

✍️ In today’s newsletter:

DeFi TVL bounces back in Q1
Hacks in crypto are down vs Q4
Markets rally on inflation numbers
IOSG report on derivatives DEXs [ Premium ]

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DAPPRADAR REPORT

DeFi TVL Bounces Back Even as Active Users Decline in Q1

TLDR DeFi’s TVL rose by over 37% in three months to tag $83.3B while the number of unique wallets interacting with DeFi applications each day fell by nearly 15% over the same period, compared with a 10% drop in web3 dapp users overall, according to DappRadar’s Q1 2023 Industry Report.

LAYER 2S DRIVE GROWTH The rise in popularity of scaling solutions like Arbitrum, Fantom, and Optimism have contributed to the rise in DeFi TVL, DappRadar said, with the much-expected Arbitrum airdrop as one of the main drivers for trading activity.

HACKS

Crypto Scammers Pilfered Over $370M In Q1

TLDR More than $370M was lost to hacks and exploits during the first three months of 2023, down from a whopping $5B in the last quarter of 2022. According to data from Rekt, $215M, or 57% of losses for the quarter, was stolen during the first three weeks of March.

POPULAR ATTACKS Rekt counts 47 incidents over the past three months in total. Smart contract exploits are the most popular form of attack this year, with 17. Rugpulls ranked second with eight, followed by flash loan attacks at six.

MARKETS

Crypto Markets Rally on Bets Fed Will Slow Pace of Rate Hikes

TLDR Crypto and stocks rallied Friday after the publication of data that show inflation in the U.S. cooling in February. Bitcoin and Ether are up just over 2% after U.S. inflation rose at a slower rate than expected, signaling the Federal Reserve may cool the pace of interest rate hikes.

RISK ASSETS Crypto rises at the prospect that the Fed may slow its rate hikes. Lower rates make borrowing cheaper, which in turn means there will be more capital available to buy risk assets. Digital assets have rebounded this year from the worst bear market since 2019 in part as speculation grows that the U.S.’s fight against inflation with hawkish monetary policy is finally paying off.

IOSG REPORT [ PREMIUM ]

From dYdX to GMX: What Derivatives DEXs Have and Have Not Achieved

TLDR Crypto derivatives volumes have been outpacing the spot market, and the trend shows no signs of slowing down. However, when we turn our attention to decentralized exchanges (DEXs), the story is a bit different. Derivatives volumes were only 56% of the spot market volumes, indicating a relative immaturity in the derivatives DEXs. This is especially apparent when we compare the DEX to CEX ratio within the specific vertical: derivatives DEXs account for a mere 1.5% of CEX volume, while the share is closer to 8% in the spot market.

LOST OPPORTUNITY If there was ever a moment that could serve as a strong catalyst for the growth of derivatives exchanges, it was surely the bankruptcy filing of FTX in 2022 after a series of controversial events. This unprecedented shock served as a stark reminder not to trust centralized players. But the question remains: have we truly learned the lessons this time?

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