The decentralized finance (DeFi) sector has been experiencing a resurgence, with notable growth in key metrics such as active loans and total value locked (TVL) from their lows in 2023. DeFi lending, a crucial aspect that allows investors to lend their crypto assets in exchange for interest, serves as an important indicator of DeFi participation and overall market health.
A recent report by crypto market analytics platform Token Terminal highlighted a significant increase in active loans within the DeFi sector, totaling approximately $13.3 billion. This surge in lending activity is a positive sign and could potentially indicate a rise in leverage within the sector, a trend commonly associated with the beginning of a bull market.
During the 2021 crypto bull market, active loans in DeFi reached a peak of $22.2 billion, aligning with the skyrocketing prices of Bitcoin and Ethereum. However, this number plummeted to around $10 billion by March 2022 and hit a low of $3.1 billion in January 2023.
The total value locked (TVL) in DeFi also experienced a decline, dropping by 80% from a peak of $180 billion in November 2021 to approximately $37 billion by October 2023. Nevertheless, recent data from DefiLlama indicates a resurgence in the sector, with TVL rising by about 160% to around $96.5 billion. In the first half of 2024, DeFi TVL doubled, hitting a high of $109 billion in June.
Currently, the liquid staking protocol Lido holds the top spot in terms of locked value, with a TVL of $38.7 billion. EigenLayer and the Aave protocol are closely following, each securing over $11 billion in locked assets.
Experts like Taiki Maeda, the founder of Humble Farmer Academy, have predicted a potential “DeFi renaissance” after a period of underperformance lasting over four years. Maeda highlighted the shift of many “DeFi OGs” into the category of “high float, low fully diluted valuation (FDV)” coins with promising catalysts on the horizon. He mentioned Aave as a prime example, anticipating that it is well-positioned to outperform due to the increasing supply of its native stablecoin GHO and the Aave DAO’s efforts to reduce costs and introduce new revenue streams.
Despite the positive trends in the DeFi sector, data from CoinGecko reveals that DeFi assets only hold a market capitalization share of 3.4%. Moreover, native tokens for notable DeFi platforms like Aave, Curve Finance (CRV), and Uniswap are still trading over 80% below their all-time highs.
Overall, the resurgence of the DeFi sector is evident through the increase in active loans and TVL, with experts foreseeing a potential DeFi renaissance on the horizon. However, the market capitalization share of DeFi assets remains relatively low, indicating room for further growth and development in the sector.
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