Messari Q2 review shows how Binance Smart Chain has failed against Ethereum in the DeFi space

  • Binance Smart Chain slumps in Q2 amid DeFi crash and regulatory scrutiny.
  • Ethereum solidifies its hold on the space, again proving why it’s the ‘King of DeFi.’

A new report by cryptocurrency data firm Messari suggests that Binance Smart Chain had a tougher second quarter than Ethereum. With the general slowing down of the crypto market, the DeFi market has taken a hit. The Binance Smart Chain network, however, appears to be taking more hits than its peers. Much of its woes have stemmed from the regulatory scrutiny directed at the Binance exchange.

The British Financial Conduct Authority (FCA) announced in June that Binance is not licensed to conduct business there. In compliance with the Authority’s wishes, several financial institutions, including banks Barclays, NatWest and Santander went on to curtail their clients’ access to Binance and other crypto exchanges. A July 12 announcement from payment processor Clear Junction revealed that it would cease processing payments on behalf of the exchange.

Read More: Another one! A key payments partner withdraws support for Binance

Highlights of Messari’s Q2 DeFi review

Decentralized Finance gained momentum in 2020. According to CoinGecko, on August 9, DeFi’s market capitalisation had reached $11 billion. About a  week later, it hit $15.1 billion. Those who tapped into the market early made huge returns. The DeFi market, however, is on a down-swing according to the Messari Q2 ‘21 DeFi Review.

The report reveals that activity on DeFi protocols reduced in the second half of Q2.  Conversely, trade volume on decentralised exchanges (DEXs) increased in Q2 from $221 billion to $405 billion. While that may seem like a win for DEXs, the report notes that the  DEX volume took a nosedive toward the end of the period. Monthly DEX volume in May was $203.5 billion but dropped to $95 billion in June.

The hardest hit by the fall was Binance Smart Chain and its DeFi apps. This includes one of the most popular coin swaps DEX, PancakeSwap which had performed quite well in the first quarter, going neck-to-neck with Ethereum-based Uniswap.

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Messari notes, “Combined with a series of hacks and exploits on BSC leading to hundreds of millions of dollars in losses, BSC saw speculation dry up dramatically in June leading to PancakeSwap volumes diving 69% in June.”

Messari asserts that Binance has been myopic in permitting users to make quick money off it. Comparing TVLs (total value locked), Messari noted;

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Although TVL  across all smart contract platforms contracted, BSC’s was particularly hurt given most of the value locked in its applications was mercenary capital and consisted of assets that had little use outside of incentivizing user speculation. Unlike Ethereum’s TVL, which has a healthy dose of stablecoins in the mix, the composition of BSC’s TVL was heavily skewed towards the higher end of the risk spectrum making it extremely sensitive to market swings.

While Binance Smart Chain has been steadily losing its grip in the DeFi space, Ethereum-based products have generally been gaining momentum. With projects like Polygon spearheading technological advancements that ensure low fees and scalability, Ethereum has continued to be the preferred platform.

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Tukiya is an IT Student with a newly found interest in blockchain technology and its potential applications in everyday life.

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