Decentralized finance (DeFi) has been a big part of the explosive growth seen across the cryptocurrency ecosystem in 2021, with decentralized exchanges like Uniswap and SushiSwap and lending protocols like Aave and Compound adding a new dimension of token utility.
Data from Messari’s DeFi Assets index shows that over the past 30 days, a majority of the top 10 DeFi tokens gained more than 20%, with the top gainer, Terra (LUNA), seeing its price increase more than 116%.
Three developments make the bullish case for DeFi tokens: a rapidly recovering total value locked, rising trading volumes on decentralized exchanges and the non-stop addition of new users into the DeFi ecosystem.
Total value locked makes its way back toward an all-time high
Data from DeFi Llama shows that the total value locked (TVL) in DeFi platforms is inching closer to its previous $155 billion all-time high, and the figure currently stands at $140.56 billion.
Some of the biggest TVL gainers over the past seven days include a 22% gain for Lido (LDO), an Ether (ETH) staking protocol that allows tokenholders to stake on the Ethereum network, and a 36% gain from Venus (XVS), a Binance Smart Chain-based lending protocol.
An increasing TVL is a reflection of rising token values and increased activity and deposits in the DeFi ecosystem. This boost in sentiment was also seen in the Crypto Fear and Greed Index, which flipped from Extreme Fear to Greed during the last month.
DEX volumes are on the rise
Another sign that the DeFi sector is waking up is the rising daily trading volume on decentralized exchanges (DEX), led by Uniswap, whose volume has been steadily increasing since the last week in July, according to data from Dune Analytics.
The rise in DEX activity came despite the increasing cost of performing a transaction on the Ethereum network, a figure that has been rising since the implementation of the London hard fork.
During the recent bearish conditions, traders were more reluctant to pay the high transaction costs associated with DeFi on Ethereum, but the sudden uptrend in token prices appears to have emboldened users to brave the higher fee environment in the hopes of catching the rising stars.
A steady stream of new users engage with DeFi
A third indication that DeFi activity and token values could continue to rise is the growing number of users entering the DeFi space.
Data from Dune Analytics shows that the number of new users as calculated by unique addresses interacting with DeFi protocols has grown in bull and bear market conditions and now sits at a record high of 3,181,408 users.
As new users engage with the expansive DeFi ecosystem and migrate funds from the traditional financial system into the crypto economy, token prices could continue to rise as attractive yields and the ability to participate in protocol governance increase investor interest in the sector.
Ethereum’s London hard fork did little to address the concerns related to high transaction costs, which are further exacerbated by the rising price of Ether, and this means that the future of DeFi is still a new frontier where layer-two solutions like Polygon and competing networks like Binance Smart Chain and Cardano can look to increase their market share.
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