Ethereum and decentralized finance (DeFi) tokens are pushing Genesis Capital’s lending business to new heights, according to the firm’s “Q2 Market Observations” report published Wednesday.

Genesis, which is owned by Digital Currency Group, the parent company of CoinDesk, reported that it is seeing bitcoin’s role changing in the bear market. From late 2020 until the end of the second quarter, Genesis saw bitcoin’s dominance in market cap decline from over 70% to under 45%, while ether and prominent DeFi tokens doubled in value during that time.

According to Genesis’ report, bitcoin accounted for 42% of the firm’s loan book in the second quarter – a drop of 12 percentage points from the end of 2020 – and bitcoin spot trading was down to 47% in the second quarter from highs of 80% in last year’s fourth quarter.

As DeFi grows and attracts the attention of institutional investors, demand for ether is also growing. Hedge funds are increasingly turning to Genesis and other lenders to borrow ETH to deploy into DeFi protocols.

That trend was evident in the second quarter, when the firm had $25 billion in new originations, its largest amount ever in a quarter. The figure was up eightfold from a year earlier. The firm’s cumulative originated value is now $66 billion since its launch in 2018.

The report also attempts to explain the crypto market crash this spring, which saw bitcoin plummet from highs of nearly $65,000 in April to $35,000 at the end of the first quarter. Tweets from Tesla CEO Elon Musk that the car maker would no longer accept bitcoin as payment, concerns about the impact bitcoin mining has on the environment, a “dangerously levered market,” regulatory scrutiny, “a spate of negative headlines” and crackdowns on crypto miners in China were all cited as triggering a “cascade of liquidations and exhausted order book bids.”

Genesis’ report also looks ahead to technology upgrades, including Bitcoin’s upcoming Taproot activation and EIP 1559, which will change how Ethereum fees work. It also highlights the development of layer 2 scaling products like Optimism and Arbitrum in the DeFi sector. 

“Progress on the industry’s fundamentals combined with growing interest from traditional market participants will continue to push the sector forward,” the report concludes.