DeFi Market Concentration: Gauntlet Data Reveals Few Major Projects Dominate the Industry
A limited number of participants are currently dominating decentralized finance (DeFi), the sector aiming to recreate financial markets without intermediaries.
According to data gathered by Gauntlet , a crypto-risk modeling company, most categories within DeFi, such as peer-to-peer lending and decentralized exchanges, are witnessing a concentration of capital in just a few major projects.
The research revealed that the DeFi exchanges exhibit the highest level of competition, with the top four projects holding approximately 54% of the total market share.
On the other hand, categories like decentralized derivatives exchanges, DeFi lenders, and liquid staking demonstrate a significantly lower level of competition.
For instance, the top four liquid staking projects control about 90% of the total market share in that particular category, as per Gauntlet’s findings.
Tarun Chitra, the CEO and co-founder of Gauntlet, attributed the concentration to security and risk failures experienced by some of the newer protocols, leading to a shift towards projects with better risk management and no history of hacks.
Investors have grown wary due to security breaches in the DeFi sector and various setbacks in the broader crypto industry, including the collapse of FTX in November last year.
Gauntlet used the Herfindahl-Hirschman Index, a popular measure of market concentration, to analyze the data.
The total value locked (TVL) in DeFi currently stands at around $46 billion, a considerable decline from the peak value of $179 billion reached two years ago, according to DeFiLlama.
Furthermore, the Federal Reserve’s interest rate hikes have pushed yields higher in traditional markets, allowing investors to generate greater income
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