Source: CoinGecko, The Block Research Taking DeFi blue chips (UNI, AAVE, COMP, SUSHI, SNX, CRV, and YFI) as proxy indicators of the year-to-date performance of DeFi tokens, the majority of them outperformed BTC but underperformed ETH despite having a solid start in Q1. CRV was the only one that surpassed ETH in year-to-date performance after its explosive growth in Q4, whereas SNX, YFI, and lately COMP performed the worst. The strength of ETH could partially be attributed to the growth of DeFi given the Figure 106: Uniswap MAU in 2021 concentration of DeFi activities on Ethereum. Source: Dune Analytics (jefftshaw) Uniswap was the most used DeFi protocol with over a Uniswap also captured most of the DeFi revenue million active users in May. On average, 45.7% of

protocols, having $2.2 billion in revenue in 30 days. However, most recorded DeFi revenue was supply-side, i.e., fees belonging to protocol users such as liquidity providers and lenders. Only 8.1% of the revenue COMMISSIONED BY 84 2022 Digital Asset Outlook generated amongst major DeFi protocols went to protocols and their governance token holders. Figure 107: Monthly DeFi revenue in 2021 Source: The Block Data Dashboard Figure 108: Annualied DeFi revenue by protocol (30-day sample) Source: The Block Data Dashboard Lending Lending is one of the main pillars in DeFi, as the market witnessed an unstoppable growth of lending protocols in TVL from $7.1 billion to $46.8 billion in 2021, which translated to a 559.2% increase. The top 3 lending protocols by value locked were Maker, Compound, and Aave with TVL at $18.3 billion, $12.8 billion, $10.8

1 billion, $7.7 billion, and $6.5 billion, respectively. December 2022 Figure 109: Value locked in lending in 2021 Source: The Block Data Dashboard Figure 110: Major lending protocols outstanding debt in 2021 Source: Alchemy, Compound, CoinGecko Maker powers the largest decentralized stablecoin DAI, whereas Compound and Aave are money markets with algorithmically adjusted interest rates dictated by the utilization rates of lending pools. The borrow rates on Compound were more volatile and relatively higher during the bull market early this year before it calmed down after the May crash. The rates for stablecoins were constantly higher than major cryptocurrencies, which reinforced the belief of a long-biased market. COMMISSIONED BY 85 2022 Digital Asset Outlook Figure 111: Compound borrow rates (7DMA) in 2021 Source: The Block Data Dashboard

One common feature among these widely-adopted lending protocols is that all issued loans have to be over-collateralized. Collaterals can be forcefully liquidated by keepers to cover the outstanding debt should a position be deemed at risk, which is usually when the position falls below a certain minimum collateralization ratio. That way, loans can be taken out anonymously and trustlessly while mitigating the risks of protocol insolvency should delinquent borrowers default. Despite the heavy dominance of long-established lending protocols, the lending landscape is becoming more diverse as new lending platforms implement slight tweaks and target different niche audiences. Cream attempted to onboard long-tail assets onto its money market but introduced signicant risks to the integrity of the protocol, as stated in the Appendix of DeFi Exploits. SushiSwaps Kashi and Raris Fuse introduced isolated lending pairs that insulate said