What are the fastest-growing DeFi categories by market share? 

A study conducted by CoinGecko analysed the market share of nine major DeFi categories in Q1 of 2023 based on their combined market capitalization. These categories include decentralized exchanges (DEXs), liquid staking, lending, oracles, yield aggregators, insurance, fixed interest, derivatives, and asset management.

Among the top DeFi categories, DEXs currently account for 39.7 percent of the market share, followed by oracles at 16.9 percent and liquid staking at 14.2 percent. These three categories alone make up a significant portion of the DeFi market, totaling 70.7 percent.

DEX tokens held a market share of over 50 percent in Q1 of 2021. However, as the crypto industry evolved and other DeFi alternatives emerged, the market share of DEXs decreased by 5.7 percentage points in Q1 of 2023.

Similarly, the market share of oracles has also declined over the past two years. Oracles, such as Chainlink, are entities responsible for connecting blockchains to external systems, serving as a bridge between on-chain and off-chain data.

In Q1 of 2021, oracles held a 19 percent market share in the DeFi ecosystem. However, their market share has since decreased to 16.9 percent in Q1 of 2023, representing a decline of 2.8 percentage points.

While DEXs and oracles have been a part of the DeFi ecosystem since 2021, liquid staking is a newer concept that has gained traction in recent years. Liquid staking is an alternative to traditional staking, which involves locking tokens and contributing to the security of proof of stake blockchains.

In liquid staking, users stake their crypto assets and receive a receipt token, which can be transferred, stored, traded, and utilized in other decentralized applications.

In contrast to its counterparts, liquid staking has seen significant growth in its market share in Q1 of 2023. This growth can be attributed to Ethereum’s upgrade to a Proof of Stake system.

Liquid staking governance tokens claimed 6.3 percent of the DeFi ecosystem immediately after Ethereum’s upgrade. However, this share increased to 14.2 percent in Q1 of 2023, becoming the third-largest DeFi category.

Other DeFi categories that have experienced significant growth in terms of market share are derivatives and insurance. Crypto derivatives are utilized by traders for risk management and portfolio protection. They provide a means to gain exposure to cryptocurrencies without actually owning the underlying assets.

Meanwhile, crypto insurance is an option chosen by some individuals to safeguard against losses resulting from scenarios such as bankruptcy, crypto theft, or scams.

Derivatives currently constitute 10.8 percent of the DeFi ecosystem, up by 2.9 percentage points when compared to Q1 2022. The insurance category also experienced an increase of 0.5 percentage points this quarter, now holding 2.3 percent in the DeFi sector.

The fixed interest category, which initially held a very small portion (0.4 percent) of the DeFi ecosystem, has also made a minor gain in its market share in Q1 2023, increasing by 0.1 percentage points.

The fixed interest category provides an option for individuals to commit their crypto assets for a specified period and earn a fixed interest at a predetermined interest rate. This allows them to generate consistent earnings throughout the selected duration.

As the research shows, the DeFi sector has seen significant changes in recent years. The rising market share of the derivatives and insurance categories can be related to regulatory uncertainties in the crypto sector. As a result, people are looking for ways to secure their assets and hedge against market volatility.

Furthermore, methods like liquid staking have emerged that provide an alternative to use one's crypto assets to receive rewards. Given how the crypto sector is always growing with new technological concepts, it will be interesting to see how these verticals affect the DeFi space in the coming future.