DeFi Users: Ethereum Lending

Key Insights

• Weekly active borrowers are down 60% in the Ethereum lending sector since the peak of May 2021.
• Small-volume users migrated to other chains and only had 8% address retention from H1’21 to H1’22 while larger-volume users remained.
• Compound experienced an 80% contraction in borrow volume across all user segments while Aave and Maker experienced growth in the largest-volume user segment.
• Maker’s collateral debt lending model is more profitable than money markets and lends itself to a more favorable valuation on a per user revenue basis.

Who is the customer? It is a simple yet significant question for the valuation and operations of traditional technology and financial companies. However, it is seldom answered for DeFi protocols. Instead, financial metrics such as the total value locked (TVL) in the smart contracts or the amount of volume the protocol facilitates are used to assess protocols. The number of active users, user retention, and customer segments are often overlooked despite what they reveal about a protocol.

Going into a bear market, these user metrics are particularly foretelling. Protocols with higher user retention are likely to be more resilient across a period of cooled customer interest than protocols whose customers consist of bull market tourists. Since each sector of DeFi caters to slightly different customers, the protocols within each sector should be compared to one another to see which have a more resilient customer base.