Author: A Fox in Web3, Crypto KOL
Compiled by: Felix, PANews (this article has been edited)
Decentralized Finance (DeFi) is often compared to traditional finance (TradFi) and has become a vast and exponentially growing field within Web3. The goal of DeFi aligns closely with the often-heard phrase in the crypto space of 'providing banking services to the unbanked.'
The promise of providing global financial services without banks is a noble goal, and much of Web3's appeal stems from this. This article aims to reflect on the development of DeFi over the past year from today's perspective.
Overview
Total Locked Value (TVL) reaches $94.6 billion: The amount of locked funds across all DeFi protocols is significant. However, considering the total market capitalization of the crypto space is about $2.8 trillion, this still only accounts for around 3.3%, indicating there is substantial room for growth. Since last year, TVL has increased by about 1.5 times, approximately $65.4 billion, but its share in the crypto space remains relatively stable, as it was previously 3.5%.
DeFiLlama's charts started in June 2018, making it less than 7 years old, clearly indicating that DeFi is still in its infancy. However, in November 2021, DeFi TVL reached an all-time high of $176 billion. We hope TVL can reach this peak again.
Aave and Lido's TVL reaches $35.6 billion: Currently, over 37% of DeFi TVL is staked ETH in Aave and Lido. This indicates that both Aave and Lido hold a dominant position. Last year, Lido was in the lead, but later Aave took the top spot. Furthermore, most DeFi occurs on Ethereum, which remains the most important blockchain.
Stablecoin market capitalization reaches $236 billion: Stablecoins account for over 8.3% of the $2.8 trillion crypto market, more than twice that of DeFi. The growth rate of stablecoins continues to exceed that of DeFi TVL, indicating that they have truly achieved product-market fit.
The data from DeFiLlama is very rich, to the point of being overwhelming. Below, we further explore some of the categories and analyze the key points.
Top Blockchains
Currently, Ethereum remains the primary participant in DeFi, accounting for 52% of TVL, although this is a decline from 58.3% last year. Solana, with 8% of TVL, has become the second largest competitor but is still over six times smaller than Ethereum.
Solana and BSC have replaced Tron as the second and third largest public chains, pushing Tron from second to fourth place. The number of active addresses for all three far exceeds that of Ethereum, with Solana having more than 4.3 million addresses, while Ethereum has only 442,000.
Ethereum has the most DeFi protocols, currently over 1,320, up from just over 960 last year.
The Bitcoin network has 58 recorded DeFi protocols, up from 12 last year. Considering Bitcoin was not designed for smart contracts, it still accounts for over 4% of all DeFi TVL, approximately $3.8 billion.
Top Protocols
Without a doubt, Aave is the leading lending protocol among several EVM chains such as Ethereum, Sonic, Avalanche, and Arbitrum, while Morpho dominates on Base.
Most blockchains have their own lending and stablecoin projects. As many mainstream blockchains have their own protocols, restaking is also continuously evolving, with the largest participant being Eigen Layer, but Pell Network has the broadest coverage.
Stargate is the main cross-chain protocol in TVL across multiple chains.
Protocols on Ethereum dominate among similar protocols due to the large transaction volume of Ethereum DeFi.
Protocol Categories
The highest TVL is in lending, cross-chain bridges, and liquid staking, with relatively small gaps between them, ranging from $42 billion to $37 billion. Last year, liquid staking was far ahead, but the gap has narrowed, with lending and cross-chain bridges catching up.
Aave accounts for 44% of all lending, while Lido accounts for 43% of all liquid staking, making these two protocols the highest in TVL within the entire DeFi sector so far.
The TVL of DEXs is much lower, at about $18 billion, with the leading protocols being Uniswap, Curve, and PancakeSwap, all operating on more than 9 EVM chains. Even with a lower TVL, this is the most profitable segment, with transaction fees reaching $5.9 million in the last 24 hours. Such profitability explains why there are over 1,600 DEX protocols in total.
The cross-chain bridge category is primarily dominated by wrapped Bitcoin equivalents such as WBTC and Binance Bitcoin.
Foundation and Treasury
The treasury held by the Ethereum Foundation is slightly higher than half of what it was a year ago and has seen a significant decline. Meanwhile, Mantle has a large treasury, but primarily valued in its own tokens.
Some Ethereum-related projects also dominate in total treasury amounts, such as Aave, ENS, Lido, and Sky. However, they also mostly hold their own tokens.
If excluding their own tokens, the rankings would be even more uneven. However, few treasuries primarily consist of stablecoins, so they are mainly affected by market fluctuations.
Yield
Most players store their funds in Lido to earn yields, likely because most people have strong confidence in ETH as a long-term value storage tool, while Lido also dominates in liquid staking. Other ETH-based liquid staking protocols also dominate, such as ether.fi.
The staking SOL yield of JitoSOL reaches 7.75%, surpassing all other top yield products. Marinade and Jupiter's SOL annual interest rates are even higher, around 9%.
Sky Lending is the top low-risk stablecoin option by TVL, holding over $2.5 billion in its SUSDS stablecoin with a yield of 4.5%.
DeFiLlama tracks over 15,000 liquidity pools across 468 protocols on 104 blockchains.
Fees
Tether and Circle's stablecoins are by far the largest fee-generating operations in the crypto space. Tether alone generated over $5.8 billion in revenue in the past year.
Over the past year, gas fees on Ethereum remain one of the largest expenses for transaction fees, with the total fee amount not far off from Circle, at $1.3 billion and $1.6 billion respectively. However, Ethereum's fees are rapidly declining, and in the past 30 days, it hasn't even made it into the top 15. Nevertheless, Ethereum-based protocols Lido and Uniswap continue to earn high fees.
Solana's fee ecosystem has grown the fastest in the past year, with Jito, Raydium, and Pump.fun earning substantial fees. This is likely mainly due to the significant increase of memecoins on Solana.
Since last year, Bitcoin's fees have decreased by about half, and with many other competitors rising in the fee market, Bitcoin's ranking has dropped from second to fourteenth.
Stablecoins
The total market capitalization of stablecoins has nearly doubled, rising from $136 billion last year to the current $235 billion. However, USDT and USDC still dominate, accounting for 62% and 26% respectively, totaling 88% of the entire market.
The largest market share growth is seen in Ethena's USDe, which, despite not being launched a year ago, has now become the third largest stablecoin, holding a 2% market share.
Sky issued the USDS token, breaking DAI's dominance. However, after merging the market capitalizations of DAI and USDS, Sky holds a 3.5% market share, still making it the third largest market participant.
USDT, USDC, DAI/USDS, and USDe collectively account for about 93% of the stablecoin market, with a market capitalization exceeding $220 billion.
BlackRock's BUIDL fund represents new entrants, indicating that TradFi also wants a piece of the market.
Funding
The DeFi space has raised over $113 billion in funding, with a total of 6,129 funding rounds. The funding peaked from the end of 2021 to the beginning of 2022, but is now growing rapidly, having surpassed $3.5 billion just last month.
FTX and Celsius are among the projects with the highest funding in the DeFi space, having raised $900 million and $750 million respectively, and are also among the biggest failures in the sector. EOS has a similar situation, with $4 billion in funding that has almost failed to materialize.
Hacking
The DeFi sector has suffered over $11.2 billion in hacking losses, with 25% coming from cross-chain bridges and the rest from other DeFi companies and protocols.
In February this year, ByBit suffered a hack, which is the largest single hack in crypto history, resulting in losses exceeding $1.4 billion. The second largest hack occurred in 2022, targeting the Ronin network, leading to a loss of $624 million.
The North Korean organization Lazarus is responsible for these two hacks, becoming the largest hacking organization in the crypto space.
Most large-scale hacks occur within the Ethereum ecosystem, likely because most of DeFi's liquidity is concentrated in the Ethereum ecosystem.
Summary
Overall, DeFi's transaction volume is still mainly dominated by Ethereum and its EVM ecosystem (which has numerous L2s), from which DeFi has risen.
Solana has achieved significant growth over the past year and is catching up, while Bitcoin has unexpectedly begun developing its own DeFi ecosystem, even though it was not designed to be a smart contract platform. The Tron ecosystem seems to have fallen behind others, but Tron remains an important hub for stablecoin activity.
Related Reading: Broker Bill Repeal, CAKE Governance Attack... Recent 10 Thoughts on DeFi
