DeFi activity is up across several metrics, recalling levels not seen since 2022. This time, the recovery is gradual and protocols are more cautious, but there are still plenty of signs of openness promisingly wide.
DeFi has maintained low volumes for years now, while most protocols are adjusting their products. In Q2, DeFi continued to improve its metrics, trying to capture more scarce liquidity.
The main growth drivers of DeFi are the Solana ecosystem, DEX trading as well as lending activities. DeFi affects both large-scale whales and retail investors, depending on the type of protocol. Memecoin trading drives retail capital flows, while yield and lending provide passive income for whales.
Both passive income and active trading metrics suggest that DeFi is here to stay in 2024 and is becoming a major source of crypto activity.
In 2024, DeFi has shown adaptability, operating with lower total value locked. During peak valuations in 2021, even DeFi on Ethereum easily held above $120 billion. Currently, the Ethereum chain has about $60 billion in value locked, and the total top DeFi applications are now worth about $96 billion.
DeFi growth is focused on Ethereum and Solana
During this market cycle, the DeFi ecosystem aims for more sustainable growth, avoiding ramifications and liquidations. The influx of memecoins into retail wallets has lifted DeFi users to record monthly levels. In July 2024, DeFi protocols had over 8.8 million daily users based on wallet data.
One of the big changes to DeFi is the decreasing share of the BNB Chain ecosystem. The rise of Solana and Base offset BNB's financial decline.
Hacking returns to DeFi as value increases
Exploits are one of the typical signs of increased DeFi activity. The increasing value locked in protocols is once again attracting hackers.
The most recent attack occurred against Astroport, a DEX on the newly rebuilt Terra network. The reported losses amounted to $6.4 million. The other major exploit of the year affected UwU Lend, losing $20 million due to a price manipulation exploit.
Another series of attacks came from domain name hijacking, showing that even Web3 projects can suffer from the same weaknesses as Web2. Social media channels and Discord have also been compromised for the purpose of spreading malicious links and money siphoners.
Liquidity staking powers DeFi
DeFi also depends on liquidity staking, as it accounts for the majority of new capital inflows. Liquidity staking protocols currently have over $50 billion in value locked, most of which is based on ETH already staked. Liquidity staking is also spreading to the Solana chain.
Source: DeFiLlama
Over the past month, liquidity staking demand has shifted away from Ethereum, causing Lido and Rocket Pool to lose value. Instead, Solana-based liquidity staking activity exploded, boosting the value of JitoSOL.
After liquidity staking, lending is the second largest sector in DeFi. More than $34 billion is locked in lending protocols, although Aave and JustLend account for more than 50% of the value locked.
Source: DeFiLlama
Lending for passive profits has some risk but is still less risky than trading altcoins. The lack of a real altcoin market also forces investors to choose safer options. DeFi lending also benefits from the growing supply of stablecoins.
Stablecoin supply has grown to over $165 billion, with growth in niche assets created specifically for DeFi. While USDT remains in use, assets such as Aave's GHO and Ethena's USDe also add liquidity.
DEX trading is the third largest component of DeFi, contributing $19.55 billion in value locked. This part of DeFi also saw inflows into Uniswap and Raydium, but with the addition of rival Aerodrome on Base. DEX users are more aware of sandwich attacks and have to rely on block builders to protect their orders. Uniswap has the largest percentage of protected transactions provided by block builders such as BeaverBuild, Rsync, and Flashbots.
Source: DeFiLlama
The growth of DEX trading has also increased with the advent of more reliable tools for order flow management. DEX trading on Solana expands rapidly, increasing fees for the protocol. Over the past month, fewer users moved to the Solana DEX market and made a higher number of transactions.
Yield farming remains in play, carrying $6.83 billion in value locked, with the majority of the funds locked in Pendle and Convex Finance.
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