The decentralized finance (DeFi) sector has been making a comeback, with key metrics such as active loans and total value locked (TVL) showing growth from their lows in 2023. DeFi lending, which allows investors to lend their crypto assets in exchange for interest, plays a crucial role in indicating the participation and health of the DeFi market.
Recently, crypto market analytics platform Token Terminal reported a significant increase in active loans within the DeFi sector, reaching approximately $13.3 billion. This level of activity was last seen in early 2022, suggesting a potential rise in leverage within the sector. During the 2021 crypto bull market, active loans in DeFi reached a peak of $22.2 billion, paralleling the soaring prices of Bitcoin and Ethereum.
The total value locked (TVL) in DeFi experienced a decline last year, dropping 80% from its peak in November 2021 to around $37 billion by October 2023. However, according to DefiLlama, the sector has seen a resurgence, with TVL increasing by approximately 160% to $96.5 billion. In the first half of 2024, DeFi TVL doubled, reaching a high of $109 billion in June. Leading in locked value is the liquid staking protocol Lido, with a TVL of $38.7 billion, followed closely by EigenLayer and the Aave protocol.
Taiki Maeda, the founder of Humble Farmer Academy, has suggested that the DeFi sector may be entering a “DeFi renaissance” after years of underperformance. Maeda highlighted that many “DeFi OGs” now have strong catalysts and favorable valuations. He pointed to Aave as a prime example, noting the platform’s potential for outperformance due to increasing supply of its stablecoin GHO and initiatives by the Aave DAO to reduce costs and introduce new revenue streams.
Despite the recent positive trends, CoinGecko data shows that DeFi assets hold a market capitalization share of only 3.4%. Furthermore, native tokens for prominent DeFi platforms like Aave, Curve Finance (CRV), and Uniswap are still down more than 80% from their peak values. This indicates that there may still be room for growth and recovery in the DeFi token market.
The resurgence of the DeFi sector is evident through the growth in active loans, TVL, and predictions of a potential renaissance. While challenges remain, particularly in market capitalization and token values, the overall outlook for DeFi appears optimistic as the sector continues to evolve and attract new participants.