In 2020, the digital asset market has witnessed the real explosion of DeFi and entered its period of prosperity. According to TokenInsight data, the total lock-up volume of the DeFi ecosystem has exceeded US$22 billion by the end of the year from less than US$800 million at the beginning of the year, with a growth rate of more than 2650%. The total market value of DeFi projects reached 19.6 billion US dollars, a 12-fold increase.
The prosperity of the digital asset market has also brought new activity to the wallet market. In terms of user growth, the number of global wallet users has exceeded 60 million in Q1 2021, reaching 64 million. Compared with the data of less than 50 million in Q1 2020, this is an increase of 14 million, or about 30%.
Spot volume increased by 53% compared to 2019
Generally speaking, in terms of spot, the annual trading volume of digital asset spot in 2020 will reach 20 trillion US dollars, an increase of 53% compared with 2019.
The spot trading volume of the whole market in each quarter of 2020, source: TokenInsight
Compared with the derivatives market, the spot market has entered a relatively mature stage from the transaction data. The first three quarters of the spot market showed a continuous shrinking trend. It was not until the fourth quarter that Bitcoin skyrocketed and the bull market started that the overall transaction volume rebounded. March is also the month with the largest trading volume in the whole year, and the trading volume on the 312 day reached more than 73 billion US dollars.
A lot of things happened in 2020. The violent market fluctuations were accompanied by regulatory incidents on trading platforms. In the end, throughout the year, Binance’s spot trading volume reached the top of the industry, about $1 trillion, which was the combined trading volume of Huobi and OKEx, which ranked second and third.
At the same time, due to the entry of institutions in the fourth quarter, compliant exchanges such as Coinbase and Bitstamp have benefited a lot. In terms of transaction volume growth, Coinbase ranks first.
In terms of platform currency, 312 has a great impact on the transaction volume of platform currency. After experiencing 312, the transaction volume of most of the platform tokens shrank in the second quarter, but there are exceptions, such as Binances BNB, the transaction volume still increased slightly in the second quarter.
From the perspective of the whole year, although the prices of most platform tokens are rising, among them, Binance’s BNB and OKEx’s OKB have the highest increase. Due to some things that happened at OKEx in 2020, the price of OKB is relatively volatile. In short, the price increase of all platform coins has not outperformed Bitcoin.
The most eye-catching ones are of course the 3/12 crash, the entry of institutions and the skyrocketing Bitcoin. In addition, one of the most eye-catching industry hotspots in 2020 is DeFi. In terms of decentralized transactions, at the beginning of the year, the total spot trading volume was less than 0.01%, and by the end of the year, it was able to maintain more than 1%. Many DeFi assets also outperformed the markets average return on investment in the third quarter.
At the beginning of 2021, the price of Bitcoin continued to hit new highs, and the overall market is expected to continue the bull market at the end of 2020. Of course, there will be fluctuations and corrections.
Derivatives to grow faster than spot in 2020
The trading volume of derivatives in the traditional market is more than ten times that of the spot market. In the field of digital assets, derivatives will grow faster than spot products in 2020. For the first time in the fourth quarter, the quarterly trading volume surpassed that of spot products, and the annual trading volume reached 12 trillion US dollars. The transaction volume is far from reaching the traditional market share, so there is still a lot of room for growth in the future.
2019Q4-2020Q4 futures trading volume in the whole market, source: TokenInsight
The trading volume of options market in 2020 (not including exotic options), source: skew; TokenInsight
The explosion of the derivatives market in the fourth quarter was also driven by the soaring price of Bitcoin. The highest trading volume of the year occurred on November 27, exceeding $140 billion.
In terms of open interest, from the perspective of the whole year, it also continued to rise, of course, interspersed with 312 open interest fell off a cliff. By the end of the year, open interest had reached $17 billion.
A trend in the derivatives market in 2020 is that the product types of various platforms are constantly improving and enriching. For example, Binance has launched currency-based perpetual contracts and launched delivery contracts; Huobi has launched U-standard perpetual contracts. These trends all illustrate the platforms emphasis on the derivatives market and the improvement of the derivatives territory.
The highest trading volume of derivatives in the year is still Huobi. Huobi maintains a consistent advantage in derivatives, with an annual trading volume of more than 2 trillion US dollars. BitZs trading volume ranks sixth, with an annual trading volume of more than 340 billion US dollars. The mechanism of BitZ’s perpetual contract product is relatively simple and easy to understand. It has adopted position restriction measures, and the maximum number of positions in a single contract does not exceed 100,000. The position restriction alleviates the problem of liquidation and automatic reduction of positions caused by the liquidation of large accounts, and has a certain protective effect on individual investors.
In terms of user education, BitZ’s contract elements are clearly explained and easily understood by users.
It is also worth noting that Binance, after the BitMEX incident, the trading volume of the BitMEX platform outflowed, and Binance benefited; at the same time, due to the bull market in the fourth quarter, the trading volume of Binance derivatives increased by leaps and bounds in the fourth quarter, with an average daily turnover of 13 billion US dollars, the annual trading volume also exceeded 2 trillion US dollars.
It is also worth noting that CME and other compliant exchanges, CME’s position at the end of the year reached 1.6 billion US dollars, which is the same order of magnitude as that of Binance and OKEx, and is the highest in the entire market.
Another trend in the derivatives market in 2020 is the huge increase in the trading volume of options. Although it is still far below the trading volume of perpetual and delivery contracts, and due to the professional nature of the products, the threshold is high, but the annual Transactions showed an exponential growth trend.
Throughout the year, Deribit has always maintained a far-leading position in the market, and it is also the options platform with the most concentrated institutional users. Corresponding to the increase in trading volume is the layout of the platform for options and the entry of new players. Both Huobi and Binance have launched option products in 2020, and new players such as bit.com have also achieved good results after entering the market in 2020.
Awards
We also selected the best spot exchange of the year and the best derivatives exchange of the year based on the annual trading volume, liquidity, product quality, user popularity, security and compliance of each platform. The list of winners is as follows:
The total market value of DeFi projects has doubled by 12 times
In 2020, many new projects such as lending, decentralized exchanges (DEX), decentralized derivatives, and aggregators will emerge. The daily trading volume of DEX increased from less than US$5 million at the beginning of the year to US$1.28 billion at the end of the year. The total loan volume of loan projects has increased by more than 20 times from US$150 million at the beginning of the year to US$3.6 billion. DeFi projects basically achieved positive returns in 2020, with an average project return rate of 718%, among which Yearn.Finances return rate reached 2,788%.
DEX is to solve the problems of centralized exchange asset custody and trading restrictions. In 2020, the automatic market maker (AMM) model will be implemented effectively, and the transaction volume and usage will far exceed the DEX of the order book model on the chain. However, AMM also has limitations such as high slippage and impermanent loss. Therefore, as liquidity mining led to the outbreak of AMM in the third quarter, the industry began to pay more attention to the shortcomings of existing AMMs, and new AMMs focused on solving problems such as high slippage and impermanent losses.
Another thing worthy of attention is the algorithmic stable currency. The algorithmic stable currency adjusts the total market supply according to the algorithm, expands the supply when the price is higher than the target price, and reduces the supply correspondingly when the price is lower than the target price. The currency price is guaranteed to be stable at $1. Ampleforth adopts the Rebase Algorithm Model of a single Token, further controls the price through the control of the circulation, and increases or decreases the Token in the users account according to the price situation; another model adopts the Seigniorage Model model through a certain incentive mechanism. Affecting dynamic balance, such as Empty Set Dollar, Basis Cash and other projects, the complexity is enhanced, such as the introduction of a dual currency model to increase stability. The complexity of the protocol algorithm has increased, and the volatility has also increased while adjusting the price. It remains to be seen whether the stability of the algorithmic stablecoin can be truly achieved.
With the rise of liquidity mining in the DeFi ecosystem and the development of lending protocols, the market demand for fixed-rate projects has increased. In the DeFi field, fixed-rate projects use the Token model to maintain fixed rates, and more complex derivatives agreements provide users with more investment options and risk hedging solutions.
According to data from DappRadar, there will be 106 new DeFi DApps on Ethereum in 2020, accounting for 44.54% of the total new additions in that year. Compared with 2019, there are only 4 new additions in the same period. The leading position of Ethereum as a smart contract platform is currently difficult to shake, and the Gas fee of Ethereum continues to rise, but it is believed that the arrival of Ethereum 2.0 will bring it a new breakthrough point. Ethereum 2.0 is gradually being deployed, with unlimited imaginative application space .
There were 132 new DeFi DApps outside of Ethereum, accounting for 55.46% of the total, exceeding the number of new additions on Ethereum. Other public chain projects are also constantly building the DeFi ecosystem. In addition to Polkadot, various exchanges are also strengthening the DeFi layout and have certain advantages. In addition to launching DeFi project tokens, the exchange also introduces DeFi products to participate in ecological construction by building a DeFi zone; on the other hand, it also builds its own DeFi ecosystem through the development of public chains.
In April 2020, Binance released a white paper. In September, Binance Smart Chain (BSC) was officially launched, and then announced that it would provide $100 million in funding to support developers to develop based on Binance Smart Chain. Through large-scale acquisitions and investments, Binance Smart Chain has now formed multiple fields covering decentralized exchanges, lending, aggregators, and wallets, and has maintained a strong development trend since its launch. In terms of Huobi, Huobi established a DeFi laboratory in early August, focusing on the investment and incubation of DeFi projects. The Huobi ECO Chain (Heco) mainnet was launched in December and has reached cooperation with several projects.
The total lock-up volume of DeFi in 2020, source: TokenInsight
Looking forward to the future, the underlying infrastructure of DeFi continues to improve, providing a good foundation for more diverse and complex product innovations, and the continuous enrichment of products also provides investors with more choices. The continuous enrichment of the ecology will help form more benign competition, screen out better projects for the entire ecology, and form a more stable ecological pattern.
As DeFi heats up, wallets keep pace with the market
Compared with the bear market period of Q1 and Q2 in 2019, it has increased by nearly 60%. The best annual user growth performance was in November and December last year, with 4.67 million and 3.09 million respectively, and the increments both exceeded 5%. Among them, the Kcash wallet users with a better increase can reach 1.5 million.
The number of webpage user visits has also achieved steady growth, which is also caused by the external effects brought about by the hot market.
Among the top 10 digital asset wallets counted by TokenInsight, the total number of visits reached 140 million.
The third and fourth quarters of 2020 alone have seen a 32% increase, from 22 million in July to nearly 30 million in December. Among them, there was a slight negative growth in September and October, but with the steady recovery of the market, the number of visits to the wallet application also achieved a growth of more than 30% in December.
Wallet is an important user traffic entrance. In order to ensure the increasingly diverse needs of users, the industry is constantly enriching the number of supported public chains, and the ecological connectivity is gradually reflected. Since 2019, the average number of supported public chains has increased from less than 10 to 25.
In addition, with the popularity of DeFi at the end of this year, various wallets are following the pace of the market, linking to the DeFi ecosystem, gradually supporting more new DeFi projects, such as Uniswap, Compound and other high-quality agreements, improving DeFi browsers and various rich DeFi financial management Products, some wallets such as Atoken will specifically integrate Defi’s recommendation area and provide Dex aggregation products.
More and more wallets have integrated the WalletConnect function that links DApps and mobile wallets, providing channels for users to trade and transfer money in DeFi applications. As more and more PoS projects start staking, the pledge staking service has also been responded by the wallet market, especially after the launch of ETH2.0, pledge mining has become a hot topic in the market.
The high-speed growth of the market also makes the actions of hackers more frequent. According to the 2020 Digital Currency Anti-Money Laundering Report released by the blockchain security agency PeckShield, there will be 170 hacking incidents in 2020, an increase of 300% compared with 2018 and 2019; An increase of 660%.
There are also many wallet-related attacks. The hardware wallet Ledger experienced a data breach in July 2020, and Trezors were attacked by phishing attacks in October and December 2020.
Security is the most important element for wallet customers. Ensuring the security of customer assets is also the foundation of every wallet. Whether it is for hardware or software wallets, strengthening the emphasis on security is a key link that cannot be ignored in future development.
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