While meme coin mania is the narrative leading the crypto sector, the wider market, including the decentralized finance (DeFi) segment, is not too far behind, as it, too, is experiencing significant growth.
If we look at the prices, the top 100 DeFi coins have reached a market capitalization of $100.59 billion, up from just over $43 billion in Oct. 2023, as per CoinGecko. The last time we were around these numbers was during the market decline of April-May 2022. Now, after almost a year and a half, the DeFi sector is finally witnessing a resurgence of interest.
This can also be seen in the total value locked (TVL) in the sector, which has surpassed the $100 billion mark, up from a $38.4 million low over five months ago. This represents an inflow of about $62 bln, as per DeFi Llama.
Interestingly, this resurgence is led by the staking phenomenon, with Lido in the lead. Lido Staked Ether (STEH) holds a significant position, with a 30.2% dominance in the DeFi market’s capitalization. In terms of TVL, Lido protocol leads with $33.63 billion, followed by EigenLayer, which has $13.56 billion.
While Lido was founded in 2021, the restaking service provider EigenLayer only launched its mainnet this week. Despite this, EigenLayer had been attracting capital well before its launch, thanks to its points system for a potential future token airdrop. In fact, it secured a whopping $100 million from a16z just last year.
Moreover, EigenLayer doesn’t limit staking to natively staked ETH alone; it also supports other liquid staked tokens such as stETH, rETH, cbETH, and LsETH, which it says can be used as security for other protocols.
On Wednesday, Sam Padilla, Web3 product manager at Google Cloud, also announced that they are now running a mainnet node on EigenLayer. This move underscores EigenLayer’s growing popularity, which has catalyzed the rise of other liquid restaking protocols, such as Ether.fi.
Impressively, Ether.fi is nearing a milestone of one million in staked ETH, as per the data provided by Dune. In short, this staking mania is really taking off with the likes of Gearbox offering leveraged EigenLayer restaking.
In fact, just last week, Coinbase Research stated in its report that “restaking has become the second largest DeFi sector on Ethereum.” But while it can build a foundation for a new class for DeFi products, its “non-trivial” complexities can’t be ignored.
The momentum isn’t stopping here, as DEXs are also enjoying heightened activity. They recorded $269 bln in monthly volume in March 2024, surpassing the previous bull market high of almost $235 bln in November 2021. This marks a massive recovery for the sector, which saw $4.66 billion in revenues in September 2023.
Already in April, DEXs collectively handled over $63 bln in volume. The DEX vs. CEX dominance, however, is still low at just 27.15%, with Uniswap in the lead, followed by PancakeSwap.
Something is Brewing
When it comes to DeFi revival, mainstream institutions are also expecting an uptrend, with JPMorgan seeing positive market sentiments brought on by the approval of the first Bitcoin Spot ETF to drive the momentum, saying the “worst might be behind” for the sector.
Bernstein also expects DeFi to have a “big bang” recovery, citing top revenue-generating protocols as DeFi applications, more regulatory clarity, and real yield this time around.
Lately, yield rates have been on the rise, with Lido currently offering at 3.22%, RocketPool at 2.94%, Frax Ether over 5%, Coinbase at 3% on staked ETH, and Binance at 3.65%. MakerDAO, on the other hand, stands out with its smashing 13% APR on its stablecoin DAI, while Pendle is offering as much as 40%.
These yields are definitely more attractive than the traditional sector, and with crypto back capturing all the attention, they can draw more conservative investors, which holds significance at this time due to the rising interest of institutions in the space. Moreover, traditional financial firms like Fidelity, Blackrock, and Franklin Templeton are actively exploring real-world asset (RWA) tokenization, further signifying a shift towards crypto-native DeFi products.
Earlier this year, asset manager Fidelity suggested that the Fed’s anticipated rate cuts could actually spark renewed interest from major institutions in DeFi and stablecoins.
As more interest and capital pour into the sector, DeFi has been making many advancements. For instance, a new project, Ethena, launched a synthetic dollar USDe, which has gained a market cap of $2.3 bln in a matter of a few months.
We also saw how the decentralized lending protocol Aave is considering distributing fees to its holders, and DEX Sushi launched Sushi Bonds, which are described as an “economic alternative to traditional liquidity mining,” making DeFi more sustainable.
All of this, the advancements, “rising DEX volumes, explosive interest in staking, and increasing yield, all point to positive things ahead for the DeFi sector,” said Ape Terminal founder Hassan Hatu Sheikh.
“However, we are nowhere near the crazy growth seen during the DeFi Summer of 2020, and we might never be,” warned Sheikh before adding, “But that’s okay, DeFi needs to provide more sustainable solutions than one-time wonders. It’s still a small sector, accounting for less than 5% of the total crypto market, so there’s a lot of space to grow, and with institutions here and interested in staking, yield, and tokenization, DeFi is bound to see innovation, growth, and stability.”
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