Apollo Crypto, an investment management firm specializing in digital assets, has released a report highlighting the potential for a second wave of growth in decentralized finance (DeFi).
Following the peak of âDeFi Summerâ in 2020, the report notes a market slowdown. However, protocols like Maker, Uniswap and Aave have emerged as industry staples.
âAs of today the total DeFi TVL sits at approximately US$105 billion with many calling for the resurgence of DeFi and a return to the strong fundamentals it offers.â
Fed cuts and China credit expansion
The Apollo Crypto report identifies macroeconomic factors, such as the United States Federal Reserveâs recent interest rate cut and Chinaâs credit expansion, as key drivers behind DeFi growth.
The report notes that the Fedâs rate cut has created a more attractive option for risk-on assets, including cryptocurrencies like Bitcoin (BTC) and Ether (ETH).
It also highlights the boost to DeFi from the Peopleâs Bank of Chinaâs (PBOC) decision to reduce short-term interest rates and establish supportive lending measures:
âHistorically the performance of Bitcoin has been positively correlated with the PBOCâs total asset growth (as shown below) and as such this proves to be another possible bullish catalyst.â
Infrastructure and UX improvements
The report also mentions DeFi infrastructure, citing âa focus on building infrastructure in crypto over the last few yearsâ to establish âan abundance of cheap block space.â
This has allowed decentralized applications (DApps) to access block space âwith more performant speeds,â and lowered transaction costs on layer-2 scaling solutions.Â
Apollo Crypto points to Coinbaseâs cbBTC, a tokenized version of BTC, as a potential game-changer that could attract capital to the DeFi industry, offering an alternative to traditional exchange-traded funds (ETFs):
âWhen a user sends bitcoin from their Coinbase account to an address on the Ethereum or Base network, the BTC is now automatically converted into cbBTC at a 1:1 ratio, this will allow users to rotate from BTC into alternative crypto assets with more ease than ever.â
Key protocol catalysts
According to the report, Aave remains a leading decentralized lending platform, while Uniswap holds its position as the highest-volume decentralized exchange.Â
Although Maker is also noted as retaining its position as a catalyst in the DeFi resurgence, its recent rebranding to the Sky ecosystem has received mixed reactions.
Skyâs new stablecoin, USDS, saw backlash over a so-called âfreeze function,â an element Cinneamhain Ventures partner Adam Cochran called necessary for T-bill backing.
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