Hey Edge readers,

This past week brought intense volatility to both crypto and equity markets. The crypto market, in particular, experienced its largest single-day drop in over a year, erasing nearly $400 billion in value. Yet, amid the sell-off, DeFi proved its resilience, standing strong and continuing to operate seamlessly.

In today’s edition:

• DeFi’s resilience shines through market chaos

  How decentralized systems weathered the storm and emerged unscathed.

• Our co-founder Mehdi unpacks the crypto crash 🗞️

  Get the latest on our downgrade of USDA, Trump entering DeFi, and more.

Stay sharp. 🫡

-The Exponential team

DeFi’s resilience shines through market chaos

The financial world was thrown into disarray last week as several negative factors converged. Unemployment data painted a bleak picture, sparking fears of a recession. The unwinding of the yen carry trade added further pressure, while geopolitical tensions in the Middle East exacerbated market jitters. The result was a sharp sell-off across both equity and crypto markets, with volatility reaching extreme levels.

While these events caused notable disruptions in traditional financial systems, DeFi remained resilient and protocols continued to function as intended. Here is a brief recap of DeFi’s resilience in action:

• Minimal LST/LRT depegs: Liquid staking tokens (LSTs) like stETH experienced slight deviations from ETH during the sell-off but quickly rebounded. Similarly, major liquid restaking tokens (LRTs) such as weETH and ezETH saw minor depegs of less than 1% before stabilizing.

• No major increase in stETH withdrawals: Lido, the largest liquid ETH staking platform, saw no significant increase in withdrawal requests. While there was a spike for ~65K ETH on 8/5, it remained within the typical range seen historically.

  

• ETH gas spike: ETH gas fees briefly spiked to an average of >50 gwei, though the network quickly stabilized back to an average of ~7 gwei, showing the Ethereum network’s ability to handle sudden surges in demand without any disruptions.

  

• Efficient liquidations: Liquidations reached $350 million across all DeFi lending platforms due to the market crash. On Aave v3 alone, more than $250 million in collateral was liquidated without accruing any bad debt, highlighting the efficiency of DeFi’s automated liquidation mechanisms.

  

  Source: Parsec

• Stablecoin stability: Major stablecoins remained pegged to their respective assets, with only minor deviations like FRAX down -0.35%. Overall, the market’s leading stablecoins performed well, with users maintaining confidence in their stability.

  

In contrast, TradFi institutions struggled to handle the heightened volatility. Major online brokerages like Charles Schwab, Fidelity, and Vanguard experienced outages, leaving thousands of users unable to access their accounts during one of the biggest stock market sell-offs of the year. These outages highlight the vulnerabilities in centralized systems, where technical issues can prevent users from managing their investments when it matters most.

DeFi, on the other hand, operated without a hitch. Its decentralized nature ensures that no single point of failure can bring the system down, and its reliance on smart contracts allows for real-time execution of transactions. This stark contrast between DeFi and TradFi during times of market stress is a testament to the reliability of decentralized systems.

While the recent market crash is a powerful reminder of DeFi’s strengths, there is always room for improvement. Enhancing risk management tools, expanding decentralized insurance options, and further decentralizing governance could strengthen DeFi’s defenses against future shocks. This continuous evolution underscores a fundamental shift in how finance can and should operate. As we look to the future, DeFi will continue to play a critical role in shaping the evolution of global financial systems.

In the news

• Insights on 'Yen carry trade' unwinding, Jump Crypto's ETH purge, and more - Read

• Exponential explains the downgrading of Angle USDA rating - Read

• Trump family exploring new opportunities in DeFi - Read

• Another yield-bearing stablecoin enters the scene - Read

• Aave generated $6 million in revenue during the recent crypto crash - Read

• Franklin Templeton launches on-chain treasuries fund on Arbitrum - Read

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