After DeFi summer 2020, the decentralized finance space had taken a breather. New highs may be on the table, with money pouring back into the space.
DeFi hitting new highs
DeFi summer was a sight to behold in the cryptocurrency space. What previously had been a pretty much dormant space, grew from a TVL (total value locked) of one billion to ten figures. On January 1, the TVL across various blockchains in all projects considered decentralised finance was $21.4 billion. After an increase to highs in May, the wider market correction dealt a crushing blow to the DeFi party, putting an end to the overheated market. Consolidation seemed on the table, but that may not be true anymore.
The TVL in DeFi surpassed $200 billion in early October and has remained above that mark ever since. Curve, a DeFi money maker, has the largest dominance with $15.94 billion. That is probably due to the fact that Curve is active on no less than six different blockchains, including Avalanche, Ethereum, and Polygon. It’s followed by Aave, Maker DAO and Wrapped BTC, an Ethereum-native reflection of Bitcoin. These four protocols combined hold more than a quarter of the aggregate TVL in DeFi. Other top projects include Pancakeswap, Sushiswap, Uniswap, Balancer, Uniswap V3, Saber, Serum Raydium, and Bancor. The entire total value locked is distributed across different blockchains, such as Ethereum, Solana, Avalanche, Polygon, Fantom, Terra, Arbitrum, Binance, Celo, and Harmony. Ethereum is still the dominant player, locking 69% of the TVL, followed by Binance and Solana. The new chains on the block are Avalanche and Fantom, both seeing rapidly growing TVLs, although their $5 billion still pales to the value locked on Ethereum.
Money just keeps pouring into the DeFi space
It seems as if a rotation was underway in the crypto ecosystem, with the NFT market cooling off somewhat but DeFi heating up again. Large and small caps across the board rallied from mid-year lows, boosted by a wider bullish sentiment and a high price of Ethereum, which is gearing up for all-time highs as well. Furthermore, the ecosystem is also on a growth path, with analysts pointing to rapidly rising DeFi user numbers and unique wallet addresses.
This time, mostly non-Ethereum layer-one blockchains have taken the spotlight. Although Ethereum remains the number one choice for DeFi projects, competitors like Solana, Avalanche, and Fantom are incentivising users with heavy rewards to provide liquidity to their blockchains, thereby trying to “growth-hack” their way to a flourishing ecosystem. So far, it seems to be paying off. Moreover, several Ethereum competitors have announced incentive schemes for the final months of the year, with Polkadot promising as much as $800 million in liquidity rewards for its upcoming parachains. The DeFi rally may be far from over and traders seem to agree. The general consensus among them is that small and mid-caps will not hit all-time highs before Bitcoin has not put in a new all-time high itself. The future for DeFi seems very promising indeed.