The decentralized finance (DeFi) sector has exhibited remarkable resilience and growth, with its total value locked (TVL) nearing a significant milestone of $137 billion, just a slight dip from its May 2021 zenith. This growth trajectory has persisted despite a broader bearish trend in cryptocurrency markets.
DeFi’s Persistent Rise Signals Market Confidence
While the DeFi sector has not completely recovered from its highest point in November 2021, an upward momentum suggests a breakthrough could be imminent. Key factors contributing to the sector’s fortification include the advent of blockchain technologies, strides in decentralization, and the historic cryptocurrency bull market of the previous two years. The sector saw a massive increase in the amount of cryptocurrency locked, particularly between June and July 2020, with a continuous increase in TVL as cryptocurrency markets peaked by the end of 2021.
Despite setbacks like the Terra USD stablecoin collapse and FTX exchange downfall shaking the market, DeFi investments began to recuperate in 2023. In the third quarter, the TVL increased by 25%, but the real surge came in October when leading cryptocurrencies rallied, doubling the DeFi TVL since then.
Changing Dynamics in the DeFi Landscape
Industry analysts, such as Patrick Scott, highlight a shift in the DeFi growth drivers, with liquid staking projects now leading rather than decentralized exchanges (DEXs), which previously dominated. DEXs, which accounted for 37% of the DeFi market share in November 2021, have fallen to 13% of the TVL.
The allure of higher returns has drawn investors to new staking projects as rewards from conventional ETH staking lessened. Despite the challenges associated with bear markets, the quieter environment has enabled developers to focus on products aimed at long-term growth. As the cryptocurrency market expands, the demand for DeFi projects is expected to rise in tandem.