Comprehensive DeFi Report of 2023: Analyzing Key Trends, Insights & Learnings

The Decentralized Financial System (DeFi) gives users various abilities such as trading, borrowing, and staking their assets without involving a third party, such as traditional banks. 

In the DeFi system, a transaction is recorded in the blocks of a blockchain, similarly to that of a ledger. Further, these transactions are verified by one of the many users on the network.

Once the verification reaches a consensus, the block is then encrypted. A new block is then created containing the information of the previous one, and this process is continued indefinitely.

DeFi’s 2023 Market Insights

The year kicked off with enthusiasm, seeing the industry’s value surge. In Q1 alone, top cryptocurrencies expanded their portfolios by over 50%. However, the following eight months unveiled considerable price fluctuations.

As the hype of Bitcoin spot ETF grew, the market regained momentum, and with the Bull run on the horizon, the industry is set to record a new high as each cycle has displayed a new all-time high (ATH).

The DeFi industry has displayed a decent increase of approximately 29% in value, successfully reclaiming the $100 Billion mark. The total number of users has crossed seven million this year, indicating investors’ rising interest in it.

The DeFi sector witnessed a robust 29% value growth, crossing the impressive $100 Billion threshold. Remarkably, user numbers soared past seven million, underscoring increasing investor enthusiasm. Despite a significant correction in the past, DeFi surged over 50% in Year-On-Year (YOY) valuation. The horizon appears promising for further growth.

Also Read: Centralized Exchanges Report 2023: Insights and Detailed Analysis of Crypto Exchange

Exploring DeFi’s Core Categories

As the DeFi landscape matures, the anticipation for the next Bull run intensifies, especially after the sector’s previous peak at $171 Billion.

Further, the category is divided into many sub-parts which play significant roles in their respective fields. Most TVL is currently in Collateralized Debt Position (CDP), Lending, DEX, Liquid Staking, and Yield.

Collateralized Debt Position (CDP):

Created by the Maker DAO, CDP plays a unique role in the DeFi system as it locks up the collateral assets in a smart contract exchange for the stablecoins. This is widely used to comprehend customer databases other applications use to analyze, track, and manage customer interactions.

CDPs have witnessed a 15.73% surge in value, climbing from $8.104 Billion in 2022 to $9.377 Billion currently. Maker DAO led the CDP TVL at $5.823 Billion, trailed by JustStables at $1.204 Billion and Liquity locking $737.78 Million.

Lending:

DeFi’s lending facet allows investors to loan out cryptocurrency, earning interest in return. This streamlined process demands minimal documentation and levies competitive interest rates.

Lending plays an important role in the DeFi ecosystem as it accounts for a major share of the TVL of the industry. Over the past year, the Lending category has jumped over 91% in value, displaying a strong upward trajectory.

JustLend has the highest Lending value with a total of $6.6 Billion, an increase of 154% from $2.59 Billion recorded on 31st December 2022. Following this, the AAVE token stands second with a value of $6.391 billion, and Compound Finance has a value of $2.361 billion.

Also Read: Crypto Market Prediction 2024: Which Sector Will Fuel the 2024 Bull Run?

Decentralized Exchanges (DEX):

It specifically represents the number and amount of assets deposited by the liquidity providers in the chosen protocol. It plays a unique role as DEX does not require any KYC checks or documents that provide personal information. This helps preserve its user’s privacy from being sold on third-party apps.

Despite the industry regaining momentum, the DEX category has recorded a loss of over 11% Year-On-Year (YOY) from $15.036 Billion previously to $13.402 Billion at the time of writing.

The Uniswap blockchain, with twelve chains, has the highest Decentralized Exchange (DEX) value of $4.083 Billion, followed by Curve DEX with a total value of $1.754 Billion and PancakeSwap with a value of $1.456 Billion.

Liquid Staking:

Liquid staking is a gateway for users to stake their tokens, actively bolstering proof-of-stake blockchains. This mechanism not only ensures liquidity for their assets but also paves the way for passive earnings.

Currently, liquid staking holds a commanding 28% stake in the DeFi industry, translating to a value of $29.45 Billion. Lido DAO leads this segment with an impressive $20.93 Billion, trailed by Rocket Pool at $2.6354 Billion, and Binance Staked ETH securing the third spot with $1.736 billion.

Yield Farming:

Yield farming is the act of depositing tokens into a DeFi protocol’s liquidity pool, aiming to reap rewards. Typically, these rewards manifest through the protocol’s governance token, offering investors an avenue to amplify their holdings.

Yield’s growth trajectory has been consistent, witnessing a 20% uptick, transitioning from $1.311 Billion in 2022 to its current $1.573 Billion valuation. Convex Finance stands tall in this space, contributing a dominant $1.977 Billion, with Aura and Pendle following at $392.89 Million and $253.35 Million, respectively.

DeFi Titans: Standouts of 2023

Despite the DeFi category losing over 50% valuation following the market pump during the start of the year, it has successfully managed to regain the lost momentum it once had. On the other hand, the top blockchains such as Lido Dao, Maker Dao, Uniswap, and others in this category have continued to display notable price action in the year 2023. 

• Lido DAO (LDO): Boasting the highest TVL, Lido DAO witnessed a staggering 255% YOY surge, soaring from $5.787 Billion to $20.934 Billion. A notable boost followed the activation of ETH withdrawals, propelling LDO’s value by 73%.
• Maker DAO (MKR): With a current TVL of $8.549 Billion, MKR saw a 27.48% appreciation from its previous $6.706 Billion. Q3 saw MKR gain considerable bullish momentum from the broader crypto market.
• Uniswap (UNI): UNI marked a 23.20% growth in its TVL amidst the industry’s exuberant phases. However, its journey was marked by price fluctuations leading to intermittent market sell-offs.
• AAVE: Clocking a 73% surge, AAVE grew its TVL from $3.826 Billion in 2022 to $6.41 Billion in 2023. A significant chunk of this growth, 43%, was realized post the October market rally.
• Rocket Pool (RPL): RPL’s valuation skyrocketed by 366%, leaping from $565.01 Million to $2.635 Billion in 2023. Noteworthy transaction activities in mid-2023, coupled with the October surge, fueled this remarkable ascent.

Also Read: Crypto & Blockchain Funding 2023: In-Depth Report on Investments in Web3

Future of DeFi: Charting the Path Ahead

The DeFi domain, a reservoir of innovative crypto projects, holds transformative potential for the broader financial ecosystem. Presently, DeFi’s TVL hovers around $120 Billion, representing a 35% decline from its ATH of $175.517 Billion.

The transformative capabilities of the DeFi system are poised to reshape traditional finance, introducing groundbreaking payment methodologies with vast potential.

Also Read: Bitcoin Halving 2024: Why It Matters & What To Expect 

In Summary

Looking ahead, the future of DeFi appears bright. With its transformative capabilities and innovative spirit, DeFi is poised to revolutionize traditional finance by introducing groundbreaking payment methodologies and democratizing access to financial services. While regulatory concerns remain, the industry’s resilience and adaptability suggest it is well-equipped to navigate these challenges and continue its ascent.

In conclusion, 2023 was a year of remarkable resilience and renewed momentum for DeFi. As the sector continues to mature and evolve, its potential to reshape the financial landscape becomes increasingly evident. The future of DeFi is brimming with promise, and it will be exciting to witness its continued growth and impact on the world of finance.