Analyst highlights 3 macro metrics that clearly show DeFi sector growth

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Analyst highlights 3 macro metrics that clearly show DeFi sector growth
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Decentralized finance (DeFi) has been one of the hardest-hit sectors since Bitcoin (BTC) price corrected from its all-time high in early May and this can be seen by the decline in the total value locked (TVL) on all protocols. 

According to data from DeFi Llama, the total value locked in decentralized finance platforms dropped from $154 billion and currently sits at $108.7 billion.

Total value locked on all DeFi protocols. Source: Defi Llama

While the roughly 30% decline in TVL over the past two months looks bad, the year-over-year growth from $2.02 billion to $110 billion represents an increase of 5,500% for the sector as a whole.

Decentralized exchange volume reaches new highs

One of the best metrics to help gauge the sentiment within the DeFi ecosystem is the volume traded on decentralized exchanges.


According to data from Messari, the quarterly DEX volume at the end of Q2 2021 was $404.9 billion, the highest value on record.

Quarterly DEX volume. Source: Messari

This represented an 11,751% increase from Q2 of 2020, demonstrating the significant amount of growth seen in DeFi over the past year. It was also an increase of 83% when compared to Q1 of 2021 which is a testament to the amount of growth seen in Q2 despite the market downturn.

DEX volumes were cut in half from $203.5 billion in May to $95.1 billion in June, a figure which still registered as the third-highest monthly volume on record.

Monthly DEX volume. Source: Messari

After a brief challenge to its dominance from PancakeSwap (CAKE) in April, Uniswap (UNI) is back on top as the dominant DEX which accounts for more than 40% of all DEX volume.

Layer-two protocols become more dominant

Another emerging theme in the DeFi landscape is the growing prominence of layer-two solutions such as Polygon (MATIC), which help bring increased scaling and lower fees to the Ethereum (ETH) network.

While Polygon has already established itself as one of the go-to layer-two solutions for the Ethereum community, there are several other solutions in the works that could challenge Polygon as the top solution.

According to Messari, the upcoming Q3 launch of optimistic rollups by Arbitrum and Optimism are “the most anticipated launches of these solutions” due to their ability to allow “thousands of transactions to be bundled into a single rollup block.”

Related: BarnBridge unveils application to maintain portfolio weightings of ERC-20 tokens

Fixed income markets are the future

According to Messari, fixed income products are “any instrument that generates a steady and predictable stream of cash flows such as corporate bonds, treasury bills, and fixed-income mutual funds.

The three categories of fixed-income investments include securitization and tranching, fixed-rate lending and borrowing and interest rate swaps.

Examples of some emerging fixed income-focused DeFi protocols include Saffron Finance (SFI), Barnbridge (BOND), Yield (YLD) and Pendle (PENDLE).

Despite the short-term bearish conditions seen across the DeFi landscape, the long-term view shows significant year-over-year growth and building momentum for the sector as a whole as mainstream finance continues to open up to the possibilities offered by DeFi.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.

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