With FTX in crisis, Aave and Uniswap show the power of DeFi

Key points: 

• Aave has seen an unprecedented surge in activity over the past week. In about an hour, you can earn over 73% interest on GUSD, Gemini’s USD-pegged stablecoin.
• Users withdrew their GUSD holdings and began borrowing heavily on the asset, with some speculating that the borrowers were looking to short the stablecoin.
• Uniswap has mighty surpassed Coinbase for daily trading volume for Ethereum pairs.
• Wrapped Ethereum (WETH) and USDC pools on Uniswap generated $3.8 million in fees over the past week.
• Non-custodial products such as Trezor and Ledger hardware wallets saw an increase in sales. 

The complete collapse of FTX in two weeks is nothing short of astonishing.

Even the Enron liquidator, who was named CEO of the cryptocurrency exchange during the bankruptcy proceedings, called the scale of the mismanagement "unprecedented."

DeFi continues to hum as John J. Ray III continues to murk and sift through the smoldering remnants of Sam Bankman-Fried's empire, spurring supply with high rates, servicing non-custodial transactions and liquidating undercollateralized loans on Ethereum speed.

A look at the numbers shows how impressive platforms like Aave and Uniswap have moved away from FTX.

Aave, for example, has seen an unprecedented surge in activity over the past week. In about an hour, you can earn over 73% interest on GUSD, Gemini’s USD-pegged stablecoin. Reason? Simple human panic.

Gemini announced on Wednesday that payments for its Earn product will be delayed. The delays came as Gemini Earn’s loan provider, Genesis, stopped payments, citing the ongoing FTX contagion.

Back on Aave, users withdrew their GUSD holdings and began borrowing heavily on the asset, with some speculating that the borrowers were looking to short the stablecoin.

Just as these two events (withdrawal and borrowing) happened, lending rates spiked to pull more liquidity back into the platform. Remember: almost all of these decentralized lending platforms operate on supply and demand. When supply increases, interest rates fall; if supply decreases (or borrowing increases), interest rates rise.

Users are rewarded in real time for holding assets that the market tentatively defines as risky.

In a diagram, it looks like this. Lending rates are still high.

Eventually, in a worst (unlikely) scenario, GUSD could crash and Aave could vote to close that particular market. In any case, it's not the project's founder, Stani Kulechov, who will decide how that happens, but his DAO.

Amid all the FTX madness, Uniswap — DeFi’s most popular decentralized exchange — has mighty surpassed Coinbase for daily trading volume for Ethereum pairs.

Another side effect of FTX’s chaos is the non-custodial option for users to withdraw funds from cryptocurrency exchanges and switch to trading funds. Therefore, as the largest and most liquid decentralized exchange in the market, Uniswap occupies a huge volume.

Uniswap isn't the only winner either. Liquidity providers, or those who deposit funds into various pools that allow traders to swap tokens, are also cashing in as trading volumes surge.

For example, Wrapped Ethereum (WETH) and USDC pools on Uniswap generated $3.8 million in fees over the past week. The money is divided among the limited partners proportionally according to the amount they deposit. A limited partner can be anyone; a professional market maker, your grandmother, or a DAO can all participate.

Gas fees on Ethereum also increased during this crash, but paying a little more not to convert through a Bahamas-registered exchange certainly looks like money well spent.

Finally, other non-custodial products such as Trezor and Ledger hardware wallets saw an increase in sales. Ledger CEO Pascal Gauthier told, “Last week was the best-selling week in Ledger history. Sunday was our single highest turnover day to date. Until Monday, we surpassed our all-time high again.”

So, on the one hand, the crypto industry is still suffering from what could be one of the biggest scandals in the entire history of finance.

On the other hand, transparent alternatives to traditional central arrangements demonstrate why decentralized finance is so important. These alternatives are very effective.

Whether regulators will see it that way is another question.