Written by: Alvis, Mars Finance
Four months ago, Marsbit boldly predicted that the turning point of the DeFi track may have quietly arrived, and many high-quality projects have ushered in excellent layout opportunities.
Recommended reading: Is DeFi on the decline? Leading projects are returning to value
Now, four months later, the DeFi market has proved the accuracy of this conclusion with impressive data. Whether it is token performance, total locked value (TVL), or key indicators such as lending volume, they all show a strong recovery momentum.
All this shows that this field, once thought to be "falling continuously", is gradually rising from the trough and has laid a more solid economic foundation and innovation path.
DeFi market capitalization table, data from CoinGecko
Looking back at this period, the market value of DeFi has rapidly climbed from US$70.5 billion to US$132.4 billion, and the average increase of tokens has reached 87%, far ahead of the average increase of 67% in the overall cryptocurrency market. This not only reflects DeFi's outstanding performance in the market recovery, but also highlights its huge potential for future explosion.
DeFi tokens performed well: an average increase of more than 110%
DeFi Pulse Index, from Messari
Index Coop's DeFi Pulse Index (DPI) is a tokenized index that tracks the performance of the top decentralized finance (DeFi) assets available on the Ethereum blockchain. DPI provides diversified investment in the DeFi space through a single token, simplifying the investment process for users. It includes assets such as Uniswap, Aave, and MakerDAO, representing a wide range of DeFi projects.
Bitcoin hit an all-time high in December, but we can see that most DeFi tokens have performed far better than BTC and ETH recently.
The DeFi Pulse Index (DPI) has risen rapidly in the past month or so. As of press time, it has exceeded the peak level in March this year.
This means that the prices of most DeFi tokens have hit new highs, with investors achieving an average return of more than 110%.
TVL growth: a core indicator of market recovery
Total TVl of multi-chain DeFi, data from DeFiLlama
As of December 6, 2024, the total locked value (TVL) of multi-chain DeFi is US$134.6 billion, up more than 59% from the level of US$84.6 billion in August. Although this figure is still 38% lower than the historical peak of US$186.8 billion in December 2021, it has shown a clear upward trend at this time, which can be partly attributed to the general increase in asset integration, such as the new highs in packaged assets of Ethereum and Bitcoin. At the same time, favorable external crypto policies have also contributed to this upward trend.
The recovery of lending volume: leverage demand stimulates market vitality
Ethereum's main lending protocols, data from Token Terminal
Lending volume - a measure of the value of outstanding debt in lending protocols - currently stands at $18.8 billion. This is close to the peak levels of $20 billion in March and November 2021. The rising demand for loan leverage has directly led to the prosperity of the DeFi ecosystem.
DEX trading volume explodes: the dominance of decentralized exchanges
Total transaction volume of all Dex, data from DeFiLlama
DEX trading volume has surged in recent months, reaching $372.3 billion last month, exceeding the peak of $292 billion in November 2021. The current December trading volume has reached $101 billion, and is expected to reach more than $400 billion this month, setting a new record.
Dex trading volume ranking, data from DeFiLlama
Among them, Uniswap, Raydium, and Pancakeswap ranked the top three with 24-hour trading volumes of 6.1 billion, 2.1 billion, and 1.8 billion US dollars respectively, representing the leading Dex in the Ethereum, Solana, and BNB ecosystems. The token prices clearly show that the price of Uni has increased from 6.5 US dollars to 16.2 US dollars, the price of Ray has increased from 1.3 US dollars to 5 US dollars in the past three months, and the price of Cake has increased from 1.5 US dollars to 4.1 US dollars.
As trading activity and price appreciation are highly correlated, this upward trend is likely to continue until March next year, along with the liquidity brought by ETF funds.
Expansion of the stablecoin market: Stablecoins become the core of market liquidity
Stablecoin rankings, data from DeFiLlama
The current market value of stablecoins is US$196.8 billion, up 16% from the previous US$169 billion, setting a record high.
It is worth noting that USDe’s market value has exceeded 5 billion U.S. dollars, surpassing DAI to become the third largest stablecoin by market value, and also the largest decentralized stablecoin by market value. Its governance token ENA has risen from 0.2 U.S. dollars to the current 1.1 U.S. dollars in the past three months.
Stablecoins have gained widespread attention and application around the world, gradually expanding from the narrow scenario of cryptocurrency transactions to an important option for global payments.
At the same time, the growth of altcoin trading volume is mainly driven by stablecoin and fiat currency trading pairs, rather than traditional Bitcoin trading pairs, which indicates that the market is experiencing substantial growth rather than simple asset rotation. Stablecoin liquidity better explains the current surge in the altcoin market.
Institutional financing rebounds: DeFi market maturity improves
DeFi track financing amount over the years. Source: ROOTDATA
Venture capital funding in the DeFi space is experiencing a remarkable renaissance.
According to the latest data from Rootdata, the total investment in the DeFi field this year has climbed to US$1.48 billion. Although this figure has not yet reached the glorious peak of US$2.2 billion in 2021, it has clearly escaped the trough of 2023 and is approaching the level of 2022.
Innovation and future prospects of DeFi's leading projects
In the DeFi track, leading projects (the top five DeFi projects according to CoinGecko's market value) such as Aave, Uniswap, Chainlink, Hyperliquid, Ethena, etc. are constantly innovating and expanding their business boundaries, demonstrating strong vitality and market competitiveness.
ChainLink, the leading oracle
Chainlink token Link, originated from CoinGecko
Benefiting from the RWA narrative, the Chainlink token Link has risen from US$10 to US$24 in the past three months.
Chainlink's LINK token, which is primarily used to pay for the validation services of data retrieval nodes, does not provide much utility beyond this. While some argue that Chainlink as a business can continue to thrive without the LINK token, this logic runs into problems with tokens based on real-world assets (RWAs), as these tokens tend to automatically become yield assets, a situation that could attract the attention of regulators, especially the SEC.
The reason why Chainlink is the leader in the oracle track is mainly due to its decentralized network design, strong security and extensive ecological integration. As a decentralized oracle network, Chainlink provides reliable and diverse data sources by connecting multiple independent nodes, avoiding the risk of single point failure. It cooperates with multiple blockchain platforms and traditional financial institutions (such as Google Cloud, Oracle, etc.), supports cross-chain compatibility, and expands the application scenarios of smart contracts.
In addition, Chainlink uses incentive mechanisms and pledge mechanisms to ensure the accuracy and security of data, while continuously innovating technologies such as off-chain computing and privacy protection solutions to further enhance the functionality of smart contracts. With its technological advantages, extensive partners and strong community support, Chainlink has firmly established itself as a leader in the oracle field.
Possible drivers of LINK include:
- Key developments and updates in the Chainlink ecosystem, such as the upcoming launch of the Staking v0.2 platform;
- Five Chainlink services were integrated into seven different chains, including Base and Arbitrum;
- Collaboration with financial entities such as SWIFT to leverage Chainlink’s Cross-Chain Interoperability Protocol (CCIP) for numerous collaborations on asset tokenization and cross-chain interoperability;
- The surge in TVL in the RWA space and the hype around this narrative.
Dex leader Uniswap
Uniswap volume and revenue, from DeFiLlama
Since the launch of V2 in May 2020, Uniswap's market share in the decentralized exchange space has experienced ups and downs. It peaked at nearly 78.4% market share in August 2020, but then fell to a low of 36.8% in November 2021 as DEX competition intensified. However, Uniswap not only successfully regained momentum, but also proved its resilience and recovery ability with nearly 70% market share. At the same time, Uniswap also set a record high of US$94.4 billion in average monthly trading volume.
As a leading automated market maker (AMM) protocol, Uniswap V4’s liquidity pool update once again demonstrates its innovation and leadership in the field of decentralized trading protocols. This series of improvements has enhanced the flexibility and scalability of the protocol, significantly improved its market competitiveness, made Uniswap V4 ahead of its competitors in many aspects, and continued to consolidate its dominant position in the DeFi ecosystem.
Derivatives Trading Hyperliquid
Hyperliquid token HYPE, originated from CoinGecko
In the cryptocurrency space, many projects rely on hype and volume subsidies to attract attention, but Hyperliquid is different. It has no publicity, no venture capital funding, and relies entirely on strong product strength to surpass its competitors. Hyperliquid is a decentralized perpetual contract exchange with a fast-growing spot market and actively promotes meme culture. The team intends to solve the performance bottlenecks of current L1 and L2 public chains by developing an L1 public chain optimized for high-frequency trading. The design of the on-chain order book ensures open and transparent transactions, avoiding the "front-running" and information advantage problems of traditional centralized exchanges. Hyperliquid's goal is not just contract trading, but to build a complete on-chain financial ecosystem, promote innovation in the DeFi field, and further expand to efficient decentralized options markets, etc.
In addition to strong technology and products, Hyperliquid is also supported by the community, with many users using "xxx.hl" as their username to express their trust and support for the platform. As for how to capture value before Hyperliquid issues coins, investors can choose to buy its iconic meme coin "purr", inject HLP, or buy Hyperliquid Points. Since Hyperliquid has no venture capital support and strong profitability, they have enough room to increase the airdrop ratio of points, and it is expected that at least 15% of the tokens will be used for airdrops. As a trader and DeFi enthusiast, I am confident in Hyperliquid and believe that now is the best time to participate in its growth.
Currently, OKX has launched Hyperliquid (HYPE) pre-market trading, with a price of $14, and more exchanges may be launched in the future.
Lending leader AAVE
AAVE TVL and Revenue, from DeFiLlama
Aave is one of the oldest Defi projects. After completing its financing in 2017, it completed the transformation from peer-to-peer lending (the project was called Lend at the time) to a peer-to-pool lending model, and surpassed the leading project in the same track, Compound, in the last bull market cycle. Currently, it is the number one in the lending track in terms of market share and market value.
TVL exceeds 21.6 billion US dollars. Aave's revenue has exceeded the peak of the previous bull market for six consecutive months, with strong profitability.
As of writing, the price of AAVE tokens exceeds $257, with an increase of more than 83% in the past three months, setting a new high in two years.
Ethena, the leader in decentralized stablecoins
Ethena token ENA, originated from CoinGecko
In the past month, the total issuance of USDe has increased from US$2.4 billion to US$5 billion, achieving a monthly growth of over 110%. USde has also surpassed DAI to become the largest decentralized stablecoin by market value.
Ethena protocol annualized rate, from Ethena official website
The underlying logic of Ethena is that after BTC broke through a new high, the bullish sentiment was strong, and the increase in funding rates raised the staking yield of USDe and brought about the growth of USDe. Although it has dropped compared to the previous few days, the APY shown on the Ethena official website on December 6 was about 40%.
In this growth spiral, almost every participant is a beneficiary, and USDE's leveraged miners/lenders can obtain extremely high but variable returns through leverage.
Future Outlook: Deep Integration and Institutional Development of DeFi Ecosystem
Looking ahead, the DeFi market will continue to develop in the following aspects:
Institutional development: As more and more traditional financial institutions enter the DeFi field, institutional investment will become an important driving force for the DeFi market, bringing more financial and technical support.
Cross-chain and interoperability: The maturity of cross-chain technology will further promote the popularization of DeFi applications, especially with the help of oracles such as Chainlink, DeFi will achieve more extensive cross-chain collaboration and data sharing.
Compliance and Regulation: As the regulatory framework gradually improves, the DeFi market will gradually adapt to stricter compliance requirements, which will pave the way for the long-term healthy development of the market.
User experience optimization: The DeFi platform will attract more non-technical users to participate in this ecosystem and promote the popularization of DeFi by continuously optimizing the user experience and lowering the entry threshold.
In summary, although DeFi is facing some fluctuations in the short term, judging from market data, DeFi's recovery momentum is already very obvious. With the continuous innovation of core projects, the increase in institutional investment, and the gradual support of policies, the DeFi ecosystem will show a broader development prospect in the next few years.
