The decentralized finance (DeFi) sector is currently experiencing a significant resurgence, with key metrics such as active loans and total value locked (TVL) showing growth from their lows in 2023. DeFi lending plays a crucial role in allowing investors to lend their crypto assets in exchange for interest, serving as a barometer for DeFi participation and the overall market’s health.
According to a recent report by the crypto market analytics platform Token Terminal, there has been a notable increase in active loans within the DeFi sector, reaching approximately $13.3 billion. This level of activity has not been seen since early 2022, indicating a resurgence in lending activity. The rise in active loans suggests a potential increase in leverage within the sector, a trend often associated with the beginning of a bull market.
During the 2021 crypto bull market, active loans in DeFi surged to a peak of $22.2 billion, aligning with the record highs reached by Bitcoin and Ethereum. However, this number dropped to around $10 billion by March 2022, hitting a low of $3.1 billion in January 2023. The total value locked (TVL) in DeFi also experienced a decline, falling 80% from a peak of $180 billion in November 2021 to roughly $37 billion by October 2023.
Despite the setbacks faced by the DeFi sector, recent data from DefiLlama indicates a notable resurgence in TVL, with a 160% increase to approximately $96.5 billion. This growth continued as DeFi TVL doubled in the first half of 2024, reaching a high of $109 billion in June. Leading the pack in terms of locked value is the liquid staking protocol Lido, boasting a TVL of $38.7 billion. EigenLayer and the Aave protocol are also notable contenders, each holding over $11 billion in locked assets.
Taiki Maeda, the founder of Humble Farmer Academy, has suggested that the DeFi sector may be entering a “DeFi renaissance” after several years of underperformance. He highlighted that many “DeFi OGs” are now considered “high float, low fully diluted valuation (FDV)” coins with significant catalysts on the horizon. Maeda specifically mentioned the DeFi lending platform Aave as a potential outperformer, citing the increasing supply of its native stablecoin GHO and the Aave DAO’s initiatives to reduce costs and introduce new revenue streams.
Despite the recent positive trends in the DeFi sector, CoinGecko data indicates that DeFi assets only hold a market capitalization share of 3.4%. Furthermore, native tokens for prominent DeFi platforms like Aave, Curve Finance (CRV), and Uniswap are still trading over 80% below their all-time highs, showcasing the challenges that the sector continues to face.
The DeFi sector is witnessing a revival in 2024, with notable growth in key metrics such as active loans and total value locked. The resurgence in lending activity, coupled with the rise in TVL, signals a positive trajectory for the DeFi space. However, challenges remain, including low market capitalization shares and the depreciation of native tokens. As the sector navigates these hurdles, it will be interesting to see how DeFi evolves in the coming months and whether it can sustain this newfound momentum.
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