Since Trump’s re-election in 2024, DeFi has been rapidly gaining mindshare. With renewed optimism surrounding crypto regulations and increased activity among developers and innovators, the question looms large: are we on the brink of a DeFi Renaissance?
2021: DeFi Summer
The DeFi Summer of 2021 was a watershed moment for the crypto industry. Yields were unprecedented, with protocols like OlympusDAO leading the charge. At its peak, OlympusDAO boasted over $3 billion in TVL, driven by a novel bonding mechanism and the introduction of the (3,3) meme, which emphasized cooperative staking for the OHM token.
During this time, many protocols leveraged liquidity mining to bootstrap their ecosystems, distributing governance tokens to incentivise user participation. However, this model proved unsustainable as it encouraged mercenary liquidity: users hopping from one protocol to another in pursuit of the highest yields. This era revealed both the potential and the vulnerabilities of DeFi.
2022: The Fall of LUNA-UST and FTX
The exuberance of DeFi Summer gave way to caution in 2022. As yields declined, users sought seemingly safer alternatives like an algorithmic stablecoin UST issued by the team behind the Terra blockchain, which promised a 20% APY on a 'stable’ crypto asset. However, the sudden collapse of UST and, subsequently, Terra’s LUNA, triggered a catastrophic domino effect, wiping out over $20 billion in DeFi TVL overnight.
The FTX scandal later that year further eroded confidence, with the collapse of one of crypto's most prominent centralized exchanges dragging down investor sentiment. However, the silver lining was a marked shift back to DeFi, as users began to prioritise transparency and decentralisation over centralised solutions.
2023: The Rise of Liquid Staking and RWAs
In the aftermath of Ethereum’s transition to Proof-of-Stake (PoS) in late 2022, liquid staking emerged as a dominant trend in 2023. This innovation allowed users to stake their ETH in validator nodes while retaining liquidity to participate in other DeFi activities. The sector’s TVL tripled in a year, spearheaded by platforms like Lido Finance.
Real-world assets (RWAs) also gained traction, with protocols like Sky (formerly MakerDAO) leading the charge. By onboarding custodians for RWA vaults, MakerDAO grew its TVL from $600 million to $2.4 billion, marking a significant step toward bridging traditional finance (TradFi) with DeFi.
2024: Restaking and Memecoins
The rise of Eigen Layer in 2024 brought restaking into the spotlight. By enabling users to restake their tokens for additional yield or security purposes, restaking protocols attracted significant capital inflows. This innovation fueled the growth of Liquid Restaking Tokens (LRTs) and a plethora of yield strategies, as users sought to optimise returns and position themselves for potential airdrops.
Meanwhile, memecoins continued to evolve beyond their cultural significance. Launchpads like Pump.fun and SunPump democratised token creation, leading to a surge in speculative assets that replaced traditional yield farming for many users. The success of memecoins can be seen in their transaction volumes and fee generation, which in some cases have outpaced giants like Uniswap.
What’s Next for DeFi?
As DeFi matures, the next wave is likely to be defined by institutional capital, user-friendly onboarding, and new technical innovations. Here’s what to watch:
Stablecoins and Payments
Stablecoin adoption continues to soar. While centralised options like USDT and USDC dominate, decentralised alternatives like USDe are finding their place in institutional and retail payment systems. This convergence between DeFi and TradFi opens opportunities for growth in sectors such as RWA and on/off ramps, which are poised for exponential growth in 2024.
Onboarding Abstraction
Frictionless user experiences are becoming a priority. Protocols like Moonshot and Telegram Stars are setting new standards by simplifying wallet setups, bridging processes, and cross-chain transactions. These innovations lower barriers to entry, making DeFi accessible to a broader audience.
New Experiments
The return of OG builders like Andre Cronje and the revival of iconic protocols like OlympusDAO signal a new era of experimentation. With the (3, 3)’s calling for an OHM revival, and new protocols on the Sonic blockchain, there is a strong indication of the creative potential for DeFi protocols in the coming months.
Overall
While the TVL of DeFi remains below its 2021 highs, the industry is on an upward trajectory. Innovations in areas like liquid staking, RWAs, and onboarding abstraction are cementing DeFi as a foundational pillar of the crypto ecosystem. With institutional interest growing and a renewed focus on sustainability, 2024/2025 could mark the beginning of a true DeFi Renaissance.
We are actively looking for innovative DeFi projects. Founders can reach out to DWF Ventures directly.