Declining DEX volumes reflect DeFi investors shift to Bitcoin, data shows

All eyes are set on Bitcoin (BTC) as the digital asset continues to trek to a new 2020 high. Meanwhile, the hype around decentralized finance projects continues to die down, especially as token prices plummet. Data shows that trading volume for decentralized exchanges, or DEXs, is dropping rapidly, further signaling the decline of the DeFi sector.

The recent hack of Harvest Finance saw volumes across DEXs boom for one day, especially Uniswap and Curve. According to media reporting and Harvest investors, the hacker executed a flash-loan exploit that used millions of dollars worth of cryptocurrency across both Uniswap and Curve to drive down the perceived prices of Tether (USDT) and USD Coin (USDC) tokens on Harvest Finance.

The attacker then bought those tokens at a discount, used them to pay back the initial flash loan, and netted a tidy profit in the process. By doing this multiple times, volumes at Uniswap were inflated.

While the hack bumped daily DEX volume to just over $5 billion for the day, the anomaly was short lived, and since then, volume still seems to be on a steady decline.

Daily DEX volume. Source: Dune Analytics

In the second half of October, DEXs saw the worst week in terms of trading volume since August. Weekly volume dropped from the $8 billion record in the first week of September to roughly $3 billion from Oct. 19–25. Uniswap is still leading the pack with a 56% market share of all DEX trading volume.

Weekly DEX volume. Source: Dune Analytics

Despite the major correction seen across DeFi assets and reduced trading volume, the total value locked has remained near record highs. Data from DeFi Pulse shows the total value locked is currently at $11.2 billion, a slight drop from the Oct. 25 all-time high at $12.46 billion.

Total Value Locked (USD) in DeFi. Source: DeFi Pulse

DeFi season ends right as the Bitcoin bulls come back

As the hype around decentralized finance recedes, Bitcoin is once again in the spotlight. Bitcoin price has soared roughly 24% since the start of October, with multiple high profile bets being made by corporate giants like Square and Paypal, the latter of which could help triple Bitcoin’s user base in the near future.

Reduced trading volume for DeFi shows that traders have lost interest in, to a degree, taking profits and are returning to Bitcoin. This is further cemented by the rising volumes seen across Bitcoin derivatives products.

BTC Futures Volume by Exchange. Source: Digital Assets Data

While it’s difficult to discern the impact institutional players are having on Bitcoin price action, the recent acquisitions and surges in options and futures volumes do indicate that bulls are at play.

Following PayPal’s announcement that it will add Bitcoin to its platform, the price of BTC rallied nearly 10%. On Oct. 23, Grayscale announced that a whopping $300 million of crypto assets were added in just one day, and currently, the firm holds $7.6 billion in assets under management.