The total value locked (TVL) in all decentralized finance (DeFi) protocols is surging. According to data from DeFi Llama, TVL reached an all-time high of $157.06 billion on Aug. 22, indicating positive sentiment for the growing ecosystem.
Over the last two weeks, altcoins and DeFi tokens have been rising rapidly in value, with new all-time highs in sight for many of these projects’ tokens.
According to data from Messari, the majority of top 10 DeFi tokens gained more than 20% in the past 30 days, with standout growth seen in projects like THORChain (RUNE) and Avalanche (AVAX) seeing gains in excess of 115% and 400% respectively.
DeFi breaking from Ethereum
During the previous all-time high in May, DeFi TVL reached US$154 billion, coinciding with the all-time highs of Bitcoin and Ethereum. However, this time around both Bitcoin and Ethereum are still more than 24% below their all-time highs, and DeFi has managed to surpass its previous record.
Hunain Naseer, a senior analyst at OKEx Insights, told Forkast.News that although the May surge in DeFi TVL during the first run came as both Bitcoin and Ether went for new ATHs, when prices tanked following the mid-May crash, the value locked in DeFi protocols showed relative strength and did not pull back as much as crypto assets.
“DeFi protocols continued to operate as designed and saw decent volumes during the bearish spell between mid-May and end of July,” Naseer said. “This explains how the recent bullish market sentiment has pushed DeFi TVL to new levels without needing BTC or ETH to put up similar performances, as the rise in TVL is effectively built on top of the foundation that we saw during the mid-year collapse.”
Historically, the majority of the DeFi ecosystem has been built on Ethereum and leverages the ERC-20 protocol. While this remains broadly true, Tanya Xu, a lead business developer for Celsius Network, told Forkast.News that the market’s TVL decoupling from Ethereum suggests that popular DeFi-related tokens with multi-faceted utility within the crypto and DeFi ecosystem are attracting investors’ attention.
“We’re seeing an exploration towards a variety of new chains and, as a result, the emergence of a flurry of layer-2 and layer-3 solutions. Those seem to have successfully attracted a chunk of the market thirsty for yields. Alongside Cardano, Polkadot, or Avalanche, we also see Curve gaining momentum,” Xu said.
While Ethereum is the original smart contracts platform and currently hosts the vast majority of DeFi protocols, the blockchain has struggled with congestion and high transaction costs, which has given potential rivals an opportunity to gain traction in the market.
“The current run-up in TVL in DeFi is supported by a wider selection of mature blockchains purpose-built for DeFi such as BSC, Terra, Solana, Avalanche, and more, offering lower transaction fees and higher TPS compared to Ethereum,” Alessio Quaglini, CEO and co-founder of Hex Trust, told Forkast.News in an interview.
Although much of traditional finance still believes DeFi is a risky sector, many institutions and venture capitalists have entered the space over the last few months.
Venture capital firm Andreessen Horowitz (a16z) has shown an increasing appetite for DeFi. Its crypto portfolio shows it backs DeFi blue chips like Uniswap, Maker and Compound. Even JP Morgan, which was initially averse to crypto, is now touting the staking business, which currently generates US$9 billion in annual revenue and could be worth over US$20 billion as soon as Eth 2.0 launches in 2022, and US$40 billion by 2025. Sygnum Bank has wasted no time becoming the first mainstream financial institution to offer Eth 2.0 staking services.
“With crypto markets having been typically retail focused, we’re seeing more institutions participating in DeFi yield farming with … a maybe more conservative risk appetite,” said Xu of Celsius. “Ultimately, this results in a more sophisticated and more liquid space to operate in, which itself becomes more attractive to other large players. This could create a snowball effect of more protocols, more projects, more stability and a disruptive financial system.”
Hex Trust’s CEO Quaglini agrees that “along with increased investor confidence and institutional-grade platforms like Aave Pro, Compound Treasury, and Anchor Protocol, the game-changing potential of DeFi is finding more recognition among retail and institutional investors.”
At press time, the total value locked in DeFi stands at US$146 billion, down around 6% since its all-time high on Aug 22.