Total DeFi TVL is 16% below its all-time high, but major players and market enthusiasts argue it's just a bump in the road to growth
Opponents of the model might lead you to believe that it is a bear market for decentralized finance (DeFi) chains, with total value locked in all decentralized finance (DeFi) chains below all-time highs, but that has not been true for most major protocols lately.
Of the top 100 chains, only 18 have lost value in the last seven days, according to DeFiLlama Data. The rest, it seems, are riding a rising tide thanks to demand and enthusiasm from early adopters.
The term T means the total value in US dollars of all assets deposited in the smart contracts of the project.
The TVL is commonly calculated in US dollars, but can be converted to another currency.
Although not perfect, the metric is used to gauge the overall “health” of the cryptocurrency and DeFi markets.
Blockchain protocol Terra hit a new TVL peak on March 22 at $27,45 billion, an increase of more than 68% from the previous month, and Curve, a decentralized exchange liquidity pool on Ethereum, ranked ranked number 1 in terms of TVL, when watching a del% increase 13,4 from a week ago to 20,41 billion.
Total value locked, or TVL, across all DeFi protocols is the sum of all crypto assets staked earning rewards, interest, etc.
The total amount locked on-chain has fallen by around 16% since a peak in early December 2021, but market players feel that the DeFi space is still in its early stages and has room to grow.
“At a high level, TVL is a good indication of the trust users have in the various DeFi protocols, namely top-tier ones like Maker, Aave, Uniswap.” commented Derek Lim head of crypto knowledge at Bybit cryptocurrency exchange.
“It is also representative of user recognition that DeFi protocols have substantial added value. However, although the TVL shows a certain picture of the DeFi landscape, it is not complete.” DeFi TVL is still very reactive within the space, and many protocols are struggling to build a differential line of customer bonding and protection like Blue Chip Layer 1 has done,” Lim continued.
“In my opinion, and despite the exponential growth that this sector has experienced in the last year, I still think that DeFi is still in the innovation and early adoption stage of its life cycle. Compared to the global cryptocurrency market capitalization of roughly $2 trillion, DeFi only accounts for around 10%, or $215 billion,” Lim added.
The growth of the sector also reflects being in its initial phase.
For example, Parallel Finance, a staking and lending protocol, saw its TVL rise to more than 300 million across all Polkadot projects it participates in within five days of launching in November. In the months since then, his TVL has risen to about $638 million, according to protocol data. Polkadot is an open source blockchain and cryptocurrency platform.
“Growth in total DeFi TVL has nearly tripled since last year; this is an incredible feat and one that is likely to continue considering DeFi is still early days in terms of adoption,” said Yubo Ruan, founder of Parallel Finance. “There is a lot to be done in DeFi, and projects like Parallel have only been around for a few months and are already seeing massive amounts of TVL.”
“Before DeFi really took off in the summer of 2020, the industry was primarily focused on Ethereum,” said Bette Chen, co-founder of Acala. “Since then, there have been many new blockchains like Solana, Avalanche and soon Polkadot that are driving strong DeFi ecosystems, taking lessons learned and product concepts from those that were devised on Ethereum.”
The substantial growth of DeFi TVL also points towards continued interest in the esosystem from both institutions and retail investors, said the co-founder of Integral, who goes by the pseudonym 0xBial. Integral is a decentralized exchange that focuses on large crypto orders.
“In the decentralized, permissionless blockchain world, capital contributed by liquidity providers drives transactions across different dApps,” he said. 0xBial. “With recent innovations in DeFi, especially on the capital efficiency front like Uniswap v3 and Integral SIZE, the growth percentage of TVL does not correspond to the use and its potential in the space.”
TVL remains a good indicator of DeFi demand and growth, he noted. 0xBial. However, it can be considered a "vanity metric," said Integral's chief marketing officer, who goes by the alias 0xKeiko.
“One thing that worries me is that the Ethereum denominated TVL is down nearly 30% from all-time highs (May 2021),” he said. 0xKeiko. “Where has the ETH gone (Ether, is the transactional token that facilitates operations on the Ethereum network.)? Probably to NFTs (centralized exchanges). So they're moving away from the DeFi line, and now they're getting into web3 using the aggressive use of NFTs to acquire new customers. This may not lead to some sort of liquidity crunch for major protocols, but it will impose more uncertainty for the final new DEX (decentralized exchange), and this is not good for innovation in this space.”
