A Review of the Development of DeFi over the Past Year

Author: A Fox in Web3 , Crypto KOL

Compiled by: Felix, PANews (This article has been edited)

Decentralized Finance (DeFi), which is often compared to traditional finance (TradFi), has become a large and exponentially growing sector in Web3. The goal of DeFi is highly consistent with the phrase that is often heard in the crypto space: “banking the unbanked.”

The promise of being able to provide global financial services without banks is a lofty one, and much of the appeal of Web3 stems from this. This article aims to review the development of DeF over the past year from a current perspective.

Overview

Total Value Locked (TVL) at $94.6B: The amount of money locked up across all DeFi protocols is huge. But considering that the market cap of the entire crypto space is currently around $2.8T, it still only accounts for around 3.3%, so there is a lot of room for growth. TVL has grown by about 1.5 times since last year to around $65.4B, but as a percentage of the crypto space, it has remained fairly stable, as it previously accounted for 3.5%.

DeFiLlama's chart starts in June 2018, less than 7 years ago, which fully shows that DeFi is still in its infancy. However, in November 2021, DeFi TVL reached a historical peak of US$176 billion. Expect TVL to reach this peak again.

Aave and Lido TVL reached $35.6 billion: Currently, more than 37% of DeFi TVL is ETH staked in Aave and Lido. This shows that both Aave and Lido are dominant. Last year Lido was in the lead, but then Aave took the lead. In addition, most DeFi happens on Ethereum, which is still the most important blockchain.

Stablecoins have a market cap of $236 billion: Stablecoins account for more than 8.3% of the $2.8 trillion crypto market, more than double that of DeFi. Stablecoins continue to outpace DeFi TVL, indicating that they have truly achieved product-market fit.

There is so much data in DeFiLlama that it can be overwhelming. Let’s take a closer look at some of the categories and analyse the key points.

Head blockchain

Ethereum is still the most dominant player in DeFi, accounting for 52% of TVL, but this is down from 58.3% last year. Solana is the second largest competitor with 8% TVL, but it is still more than 6 times smaller than Ethereum.

Solana and BSC replaced Tron as the second and third largest public chains respectively, pushing Tron from second to fourth place. The number of active addresses of these three far exceeds that of Ethereum, with Solana having over 4.3 million addresses, while Ethereum has only 442,000.

Ethereum has the most DeFi protocols, with more than 1,320 currently, up from more than 960 last year.

The Bitcoin network has 58 documented DeFi protocols, up from 12 last year. Considering Bitcoin was not designed for smart contracts, it still accounts for more than 4% of all DeFi TVL, about $3.8 billion.

Header Protocol

There is no doubt that Aave is the top lending protocol among several EVM chains such as Ethereum, Sonic, Avalanche, and Arbitrum, but Morpho dominates on Base.

Most blockchains have their own lending and stablecoin projects. Restaking is also evolving as many major blockchains have their own protocols, with the largest player being Eigen Layer, but Pell Network having the widest coverage.

Stargate is the main cross-chain protocol across multiple chains in TVL.

The protocol on Ethereum dominates among similar protocols due to the huge transaction volume of Ethereum DeFi.

Protocol Category

Lending, cross-chain bridges, and liquidity staking have the highest TVL, with relatively small gaps between them, ranging from $42 billion to $37 billion. Last year, liquidity staking was far ahead, but the gap has narrowed, with lending and cross-chain bridges catching up.

Aave accounts for 44% of all lending, and Lido accounts for 43% of all liquidity staking. These two protocols are the two with the highest TVL in the entire DeFi space to date.

DEXs have a much lower TVL of around $18 billion, with the top protocols being Uniswap, Curve, and PancakeSwap, each running on more than 9 EVM chains. Even with a lower TVL, this is the most profitable segment, with