The total value captured in decentralized finance protocols has reached a new annual high of $52 billion, a level not seen since the days before the FTX collapsed in November 2022.
The revival is notable given the turbulent history that has overshadowed the sector following the demise of FTX and other companies such as Terra, Three Arrows Capital and Celsius, with the events surrounding these players leading to widespread uncertainty around both centralized and decentralized financial protocols.
Both sectors have shown signs of recovery in recent months. When it comes to DeFi in particular, TVL has risen from around $38 billion to an annual high of $52 billion since the beginning of 2023, an increase of 36% in dollar terms.
However, the TVL metric is not immune to asset price volatility, which can greatly affect its value. The latest upward trend can be partially attributed to the rising market values of major cryptocurrencies such as bitcoin and ether, as well as steadily rising investor inflows.
DeFi improvements
In addition to the market recovery, specific improvements and upgrades within certain DeFi protocols have also contributed to the recent TVL jump.
2023 saw a significant rise in the real assets (RWAs) niche within DeFi, especially at MakerDAO, which integrated nearly $2.5 billion in RWA collateral, primarily in US Treasuries, to back its Dai stablecoin. In this way, it also reduced its dependence on centralized stablecoins such as USDC. MakerDAO’s value has risen to more than $8 billion, along with an increase in year-over-year revenue.
Maker also introduced a lending protocol called Spark, which saw significant inflows in the second half of the year. The platform allows users to deposit their DAI stablecoins using the DAI Savings Rate (DSR) to exchange them for sDAI, allowing them to earn interest while maintaining liquidity.
Likewise, liquid staking protocols like Lido Finance gained traction, allowing users to earn rewards without locking up their ether with validators. Lido remains TVL’s largest DeFi protocol, with over $21 billion in deposits. Additionally, Uniswap launched its v3 protocol in mid-2023, which provides improved capital efficiency for on-chain traders.
