The DeFi market continues to exhibit growing demand for crypto-native assets. Despite user attrition and reduced activity on Ethereum L1, its Layer 2 ecosystem remains robust and flourishing.
Executive Summary
More than 50 days into 2024, on-chain data reveals significant momentum across several key sectors of the blockchain industry. The market capitalization of tokenized real-world assets has reached a new all-time high. Concurrently, the number of addresses interacting with DeFi on major Layer 1 and Layer 2 networks has hit a two-year peak. The Ethereum Layer 2 ecosystem, in particular, demonstrates sustained and growing activity. This analysis uses on-chain metrics to highlight these pivotal trends.
Key Trends at a Glance
- RWA Market Cap Peak: The total market capitalization of Real World Asset (RWA) tokens reached a record high of $2.774 billion on February 2nd.
- Financial Asset Tokenization: The market for tokenized financial assets—including treasury bills, bonds, private credit, and real estate—also set a new record, reaching $1.614 billion on February 8th.
- DeFi User Engagement: The number of daily active addresses interacting with DeFi on leading L1 and L2 networks is nearing a two-year high, at approximately 445,000 addresses. Decentralized exchanges (DEXs) remain the most common entry point for new DeFi users.
- Ethereum Ecosystem Activity: Combined daily active addresses across the Ethereum ecosystem (L1 and major L2s) have reached an all-time high, with daily transaction counts continuing their upward trajectory. L2 revenue has also seen substantial growth over the past month.
The Current Landscape of Real World Assets (RWA)
The sector for tokenizing real-world assets on the blockchain has achieved a significant milestone. On February 2, 2024, the total market cap for these RWA tokens set a new record at $2.774 billion. A particularly noteworthy segment—financial assets including treasury bills, bonds, private credit, and real estate—also reached a new peak of $1.614 billion on February 8, 2024.
It is crucial to note that these figures represent the value of the RWA tokens themselves on public blockchains, such as Ondo's OUSG or Tether's XAUT. They explicitly exclude stablecoins and issuer tokens like ONDO and CFG. As of February 26, 2024, treasury bonds and bills constituted 58.1% of these financial RWAs.
The Shift Toward Crypto-Native Assets
Despite the record-high market cap, the dominance and utilization of RWAs within on-chain products have been gradually declining. This trend is most visible in the collateral backing for DAI stablecoin, where the use of RWA collateral has been steadily decreasing since late October 2023. This is a key indicator of a growing preference for crypto-native assets over RWAs for on-chain activities, thereby increasing demand for cryptocurrencies themselves. The recent growth of Liquid Staking Token (LST)-backed stablecoins further reinforces this shift, suggesting a robust and lasting trend.
Furthermore, the productivity or yield generation of crypto-native assets has, in certain cases, surpassed that of RWAs. A clear example can be found within MakerDAO, where the stability fees for crypto-collateralized loans have been higher than those for RWA-backed loans. This dynamic became even more pronounced after a governance vote to increase stability fees for specific collateral types, including a 191 basis point hike for its stETH vault.
This is also reflected in the supply Annual Percentage Yield (APY) for major stablecoins compared to treasury bill yields. The volume-weighted average supply APY for stablecoins like USDT, USDC, DAI, and FRAX across major lending platforms has consistently exceeded the yield on 3-month Treasury bills since late October/early November 2023—coinciding with the beginning of the decline in RWA collateral for DAI.
DeFi User Growth and Retention Metrics
Adoption metrics for decentralized finance are showing strong signs of health. The 7-day simple moving average (SMA) of daily active addresses (DAA) using DeFi on major Layer 1 and Layer 2 networks reached 576,000 addresses on February 1, 2024, marking a new two-year high. Solana has consistently held the lead in terms of daily active DeFi addresses, reaching a peak of 330,000 addresses on February 1st and maintaining 196,000 by February 20th. In contrast, Ethereum has seen a 24% decline in its DeFi user count over the past year.
The Role of Decentralized Exchanges (DEXs)
Decentralized exchanges have become the primary gateway for new users entering the DeFi ecosystem across these seven tracked chains. Since September 2023, nearly 60% of all new users who engaged with DeFi on these chains started their journey on a DEX. This aligns perfectly with the waves of airdrops and market excitement that have characterized the DeFi space over the last half-year. It's also interesting to note the increasing role of NFTs in onboarding new users to DeFi over the past three months.
Analyzing User Retention
Retention rates for DEX users were notably strong in the three months leading into January. Among the chains observed over the past five months, Solana demonstrated the highest DEX user retention, a phenomenon largely attributed to the anticipation and execution of the Jupiter airdrop campaign. However, after rising for four consecutive months (six for Solana), the monthly retention rate for DEX users on Solana, Arbitrum, and Optimism began to decline in January 2024. This suggests a potential cooling off or some user churn in this segment of DeFi following the conclusion of major airdrop events. 👉 Explore more strategies for analyzing on-chain metrics
The Expanding Ethereum and Layer 2 Ecosystem
Ethereum's Layer 1 has often faced criticism for a perceived decline in users and reduced on-chain activity. While metrics like daily active addresses and transaction count on L1 have indeed been flat or slightly declining for much of the past two years, this perspective is incomplete. Ethereum's roadmap is explicitly focused on a rollup-centric future. Therefore, judging its health solely by L1 activity is an unfair assessment. When its top Layer 2 networks are considered, the Ethereum ecosystem's user growth and activity are at an all-time high.
The combined network of Ethereum L1 and its major L2s now boasts over 1.2 million daily active addresses as of February 21st, with Ethereum L1 itself accounting for only 360,000 of those. This holistic view captures the true scale of the ecosystem.
A similar story is told by transaction counts. Despite slower transaction speeds on Ethereum L1, its L2 ecosystem averaged 3.14 million daily transactions over the 30 days ending February 26, 2024.
This robust transaction volume directly translates into growing revenue. Using a 7-day simple moving average, L2s like Arbitrum, Optimism, Base, Scroll, Zora, and zkSync were generating $1.5 million in daily revenue (fees paid to rollup sequencers) by February 26th, which also marked the second-highest daily revenue day for these observed chains.
Furthermore, these same L2s paid over $21.6 million in data availability costs to Ethereum L1 over the 30 days ending February 26th. This figure is a critical metric, demonstrating the economic value being secured by Ethereum L1 as activity migrates to its rollups.
Frequently Asked Questions
What are Real World Assets (RWA) in crypto?
RWAs are traditional financial or physical assets like treasury bonds, real estate, or commodities that are tokenized on a blockchain. This process creates a digital representation of the asset, enabling fractional ownership, increased liquidity, and easier transfer on-chain.
Why is user retention important for DeFi protocols?
High user retention indicates that a protocol offers lasting utility beyond initial incentives like airdrops. It suggests users find genuine value in the product, whether for trading, lending, or earning yield, which is crucial for long-term sustainability and growth.
What is the difference between Ethereum L1 and L2?
Ethereum Layer 1 is the main blockchain, responsible for consensus and data availability. Layer 2 solutions are separate networks built on top of L1 that process transactions off-chain before bundling and posting the data back to L1. This greatly increases scalability and reduces transaction fees for users.
How do L2s contribute to Ethereum's security?
L2s periodically post compressed transaction data and cryptographic proofs to Ethereum L1. By doing so, they inherit the strong security guarantees and decentralization of Ethereum's base layer, ensuring the final state of the L2 is immutable and secure.
What does a decline in RWA collateral for DAI signify?
A decline suggests that DeFi participants are choosing to use crypto-native assets (like stETH) over tokenized traditional assets as collateral. This can be driven by higher yields available on crypto assets and indicates a preference for the native DeFi economy.
Are high transaction counts on L2s a good indicator of ecosystem health?
Yes, high transaction counts generally indicate vibrant usage and demand for block space. Coupled with growing revenue and users, it points to a healthy and economically active ecosystem, even if L1 activity appears stagnant.