Decentralized finance (DeFi) is showing signs of a resurgence, with key indicators like active loans and total value locked (TVL) significantly increasing from their 2023 lows. Token Terminal, a crypto market analytics platform, noted that active loans have risen to around $13.3 billion, levels not seen since early 2022. DeFi lending, which allows investors to lend their crypto holdings to borrowers in exchange for interest, is an important metric for assessing DeFi participation and overall market health. During the 2021 crypto bull run, DeFi active loans peaked at $22.2 billion but plummeted to around $10 billion by March 2022 and further to $3.1 billion in January 2023. The recent recovery in DeFi lending suggests a potential increase in leverage, signaling a potential bull market.
Total value locked (TVL) in DeFi also experienced a significant decline last year, dropping 80% from its peak of $180 billion in November 2021 to approximately $37 billion by October 2023. However, the sector has since seen a remarkable recovery of around 160%, with TVL now standing at roughly $96.5 billion, according to DefiLlama. In the first half of 2024, DeFi TVL doubled, peaking at $109 billion in June. Leading the charts in terms of locked value is the liquid staking protocol Lido, with $38.7 billion locked on-chain. EigenLayer and the Aave protocol follow closely behind, with over $11 billion each. The founder of Humble Farmer Academy, Taiki Maeda, has suggested that the industry may be entering a “DeFi renaissance” after years of underperformance, pointing to the success of Aave and its initiatives.
Despite the positive trends, most DeFi-related tokens remain in bear market territory, with DeFi assets holding a market capitalization share of just 3.4%. Native tokens for prominent DeFi platforms like Aave, Curve Finance (CRV), and Uniswap are still down more than 80% from their all-time highs, even as the broader crypto market is down just 22% from its 2021 peak. This is happening despite Ethereum’s recent launch of spot Ether exchange-traded funds (ETFs) in the United States, which attracted $2.2 billion in inflows. The resilience of the DeFi sector in the face of market challenges indicates potential for further growth and recovery in the future.
Overall, the recent resurgence of DeFi is evident in the increasing activity levels such as active loans and TVL. The recovery in DeFi lending and TVL indicates a potential bullish trend in the market, with notable platforms like Aave leading the way. Despite the ongoing bear market in DeFi tokens, the sector as a whole is showing signs of strength and resilience. The positive momentum in DeFi, coupled with the industry’s potential for innovation and growth, suggests promising opportunities for investors and participants in the decentralized finance space. As the market continues to evolve, it will be interesting to see how DeFi progresses and adapts to changing trends and challenges in the broader crypto landscape.
