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DeFi Users Jump But Boom is a Mirage: Chainalysis

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Data Shows Activity Spike Came from Existing Users and MEV Bot

Ever since FTX halted withdrawals and filed for bankruptcy last week, several DeFi protocols have enjoyed surging transaction volumes and fee revenue.

However, FTX’s collapse has not spurred a rush to self-custody, according to research from blockchain analytics firm Chainalysis.

Instead, increased activity on decentralized finance platforms can be attributed to “one industrious MEV bot” — an automated program that aims to profit by front-running pending transactions — and existing DeFi users, Chainalysis argues.

On Monday, leading decentralized exchange Uniswap hit $1.1B in volume, second only to Binance and ahead of Coinbase, according to its founder, Hayden Adams. 

Volume on dYdX, the largest DeFi derivatives exchange by volume, exceeded $3.5B on Nov. 8, its highest level since May, according to data from Token Terminal. Trading volume on GMX, a derivatives exchange on the Arbitrum and Avalanche blockchains, more than doubled to above $1B between Nov. 6 and Nov. 7. 

“There’s evidence of people prioritizing self-custody, at least for this moment,” Martin Lee, an analyst at crypto data platform Nansen told The Defiant earlier this week. And sales at hardware wallet manufacturer Ledger – popular with those who value self-custody – hit an all-time high Tuesday, according to the company’s chief experience officer, Ian Rogers. 

Chainalysis says that isn’t what’s driving volume on DEXs, however.

“CeFi-to-DeFi flows have increased, but they’re not the driving force behind DEX tx volume growth,” the firm said on Twitter Thursday. “Roughly 90% of funds going to DEXes are coming from other smart contracts.”

MEV Bot Accounted For $19B

The single biggest source? That industrious MEV bot.

“This particular MEV bot has sent just under $19 billion to DEXes since November 4, making it the third-biggest source of funds sent to DEXes among all smart contracts,” Chainalysis said.

Rather than new users seeking security in self-custody, the data suggests that the recent spike in DeFi activity came from “existing DeFi users trading on the volatility in the market,” and that MEV bot “attempting to front-run them,” concludes the firm.

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