The new wave of interest in decentralized finance (DeFi) is reshaping the investment landscape of cryptocurrencies. Analysts believe that certain assets may outperform existing cryptocurrencies, with Solana (SOL) and Ethereum (ETH) playing significant roles in the upcoming market cycle. The emergence of DeFi platforms and protocols has introduced a range of yield-generating strategies, such as staking, yield farming, and decentralized exchange (DEX) trading. These methods appeal to investors seeking returns above the traditional banking system (with annual interest rates typically around 2%), with some DeFi strategies offering annualized yields of 10%-30%, and even exceeding 50% during active market periods.
For example, staking refers to locking tokens in a Proof of Stake (PoS) network to support transaction validation and earn rewards. Taking Ethereum as an example, since its transition to PoS after the merge in 2022, the total amount of staked ETH has exceeded 27 million, valued at over $50 billion at current prices, with stakers earning an average annualized return of about 4%-5%. This method is highly attractive due to its simplicity and compound returns. Yield farming takes it a step further, allowing users to lend or borrow tokens on decentralized platforms and earn interest through complex liquidity provision strategies. Mainstream lending platforms like Aave and Compound allow users to deposit assets like USDC and ETH to earn interest, while also enabling collateralization to borrow other tokens. The platforms adjust interest rates based on supply and demand, with Aave's total locked value (TVL) peaking at $15 billion in 2023. Decentralized exchanges (DEX) like Uniswap and PancakeSwap facilitate direct peer-to-peer trading without intermediaries, offering greater autonomy but requiring users to actively monitor the market. Uniswap's average daily trading volume reached a peak of $2 billion in 2023, establishing it as a leader in the DEX sector.
Among the blockchain networks critical to DeFi development, Ethereum remains the dominant force despite high transaction fees, with its total locked value in the DeFi ecosystem consistently accounting for over 50% of the entire market. However, during network congestion, Ethereum's gas fees have soared to hundreds of dollars, severely affecting user experience. Meanwhile, Binance Smart Chain (BSC) and Tron (TRX) have gained widespread attention due to their lower costs and faster transaction speeds. BSC, supported by Binance, has rapidly developed in decentralized applications, with over 500 DApps in its ecosystem and a total locked value that once approached $30 billion, with transaction fees only a fraction of Ethereum's. Tron has attracted numerous developers and users with its low-cost advantages and has made significant progress. USDT trading volume on the Tron network has consistently ranked high, with a single-day record trading volume surpassing $30 billion in 2023. Its launched TRC20 standard has enhanced the transfer efficiency and security of stablecoins, leading to a sustained increase in USDT circulation on the Tron network.
Looking ahead, the launch of new blockchain networks like Pai Network could have a significant impact on the future of DeFi. With its upcoming mainnet release and reportedly over 10 million users, Pai Network is expected to spark a new wave of DeFi innovation. Experts predict that the network's total market capitalization and trading volume could even surpass Ethereum within two years. The unique token issuance and infrastructure of the network have attracted interest from traditional financial institutions, and there are reports that it is negotiating partnerships with some fintech companies in Southeast Asia, which could drive widespread adoption of DeFi protocols.
The broader implications for the cryptocurrency market suggest that DeFi could become a primary driver of the next wave of growth. As more institutional participants enter the field seeking higher yields, subsidiaries of Grayscale's parent company, Digital Currency Group, have invested in multiple DeFi projects, and Fidelity has launched DeFi investment research services for institutional clients. Demand for DeFi-based assets could surge. This trend may intensify competition among blockchain networks, further enhancing innovation and efficiency in the DeFi ecosystem; for instance, various networks are optimizing consensus mechanisms to improve throughput. Ethereum's sharding upgrade plan and Solana's Proof of History (PoH) mechanism are aimed at enhancing performance.
Despite the risks such as market volatility and regulatory uncertainty still present, the potential for substantial returns remains highly attractive for investors willing to navigate a constantly changing market environment. In recent years, the DeFi sector has witnessed several security incidents, such as the 2022 Ronin bridge theft that resulted in a loss of $620 million and the 2023 Curve Finance vulnerability attack that caused a loss of approximately $52 million. These incidents serve as reminders of the existing risks for investors. Meanwhile, the global regulatory framework is gradually improving; the U.S. SEC has classified some DeFi tokens as securities, and the EU has passed the Markets in Crypto-Assets (MiCA) regulation to govern DeFi activities. Changes in the regulatory environment will profoundly impact industry development.
