Report: Interchain Liquidity — An analysis of DeFi Markets across the interchain
The interchain ecosystem, with its pioneering decentralized network of independent blockchains, has consistently been at the forefront of blockchain innovation.
EntryPoint’s recent report offers a deep dive into the liquidity developments within the ecosystem.
Read the full Interchain Liquidity report here >>
Introduction: The Interchain Liquidity Landscape
The report presents a thorough analysis of liquidity in the interchain, shedding light on transaction volumes, the zonal growth rate of IBC, the volume of ATOM, and a turnover comparison with ETH.
IBC’s Steady Performance and Upcoming Cross-Chain Integrations
IBC volume has demonstrated stability, plateauing around $850 million since the beginning of 2023. This consistent performance is a testament to the robust foundation of the interchain.
Furthermore, additional IBC connections developed by Polymer Labs, Composable Finance, Wormhole, and others promise a richer token variety and the potential for increased liquidity.
ATOM’s Liquidity Dynamics
Post the Terra USTC collapse, ATOM emerged as the primary onramp asset within the ecosystem, showing a consistent rise in liquidity since Terra’s downturn in May 2022. The Cosmos Hub, with its 200,000 unique active users, maintains the highest utilization rate among all Cosmos SDK blockchains, demonstrating resilience even in a bear market.
However, when comparing ATOM with Ether (ETH), certain liquidity challenges become evident. The turnover ratio, which measures volume against market capitalization, reveals that ATOM’s resilience after large trades is less robust than ETH’s. Additionally, ATOM’s market depth, indicated by the number of open orders, is narrower compared to ETH.
DEXes: Reflecting the Broader Crypto Trend
Like the broader crypto market, DEXes such as Osmosis, Canto, and Shade Protocol have experienced a decline in both TVL and volume between January 2022 and July 2023. Specifically, TVL on Osmosis, Canto, and Shade was around $130 million, $25 million, and $8.5 million, respectively, marking a decrease of 90%, 80%, and 15% from their all-time highs.
Money Markets: A Sector in Bloom
Money markets like Umee and Mars have seen a significant uptick in credit utilization. Between February and July 2023, credit utilization for Umee and Mars rose by 350% and 100%, respectively, to a total of $4.5 million and $3 million.
LSPs: The New Favourites
Liquid staking providers, including Stride, Persistence, and Quicksilver, have witnessed remarkable growth. Their TVL surged between November 2022 and July 2023, with Stride, Persistence, and Quicksilver seeing an increase of 200%, 350%, and 25% to $30 million, $9 million, and $2 million, respectively.
ATOM Economic Zone: A Potential Game-Changer
The ATOM Economic Zone (AEZ) is a strategic initiative by the Cosmos Hub to position itself at the heart of a vibrant ecosystem of interconnected appchains. The AEZ aims to bolster both security and liquidity for other chains in the ecosystem, driving on-chain activity, generating more fees for the Cosmos Hub, and attracting a broader user base. With tools like the Liquid Staking Module and the ATOM Accelerator DAO, the AEZ is poised to be a significant catalyst for the ecosystem’s growth.
Innovative Projects in the interchain: The Future of Liquidity
Several innovative projects are making waves in the interchain, including but not limited to:
- Neutron: Aims to facilitate the development and scaling of cross-chain DeFi apps, allowing smart contracts to interact with any IBC-connected chains.
- Duality: A soon-to-launch DEX that promises to unlock efficient markets, enhancing liquidity in the interchain.
- Noble: Introducing native USDC and collaborating with Toki for a Japanese stablecoin, Noble is set to significantly enhance the interchain’s liquidity depth.
- Tether: The introduction of USDT on the Kava blockchain promises to bring a surge of users and liquidity to the platform.
- Injective: A decentralized exchange pioneering fully decentralized cross-chain derivatives trading across various networks. Its unique layer 1 enhances scalability and speed, promising to enhance liquidity in the interchain.
- dYdX: Set to relaunch as a sovereign Cosmos SDK chain, dYdX is known for its advanced financial capabilities, including margin trading and derivatives. By leveraging the speed, scalability, and interoperability of the interchain, dYdX is poised to attract more users and liquidity.
User Experience: The Path Forward
While the interchain ecosystem offers a plethora of opportunities, user experience remains a challenge. The current processes, marked by complexities, need to be streamlined to ensure a more intuitive experience for both new and veteran users.
As noted above, a variety of new and emerging projects are looking to address this.
Conclusion: The Road Ahead for the interchain
The interchain, while likewise affected by the prevailing market conditions, is on a trajectory of growth and innovation. With ongoing projects, innovations, and data-driven insights, the future looks promising. The ecosystem is poised for growth, with a more fluid and user-centric environment on the horizon.
