DeFi Protocols Revive in Face of Macro Changes

The DeFi market is experiencing growth of $105 billion in TVL, driven by the Uniswap, Maker, and Aave DeFi protocols.

According to the most recent report from Apollo Crypto, an investment management firm specializing in digital assets, the decentralized finance (DeFi) market is on the brink of its second wave of growth.

The sector encountered a significant decline after the “DeFi Summer” of 2020. Nevertheless, DeFi protocols such as Aave, Uniswap, and Maker have experienced substantial growth in popularity in recent years. In its most recent report, Apollo Crypto observed that the total DeFi TVL is currently around US$105 billion, and there is a growing call for the resurgence of DeFi and a return to the robust fundamentals it provides.

The report also identifies certain macroeconomic developments as the primary motivator behind these developments. This encompasses the recent rate cuts by the Federal Reserve and the monetary easing measures implemented by the Chinese central bank, the PBoC, resulting in a more than $140 billion infusion. These macro developments have driven the DeFi growth, as Apollo Crypto observed.

According to the report, the central bank rate cuts have introduced an appealing alternative for risk-on assets, including digital assets like Bitcoin, Ethereum, and other altcoins. The PBoC’s decision to lower short-term interest rates is cited as a significant benefit for decentralized finance (DeFi).

“The performance of Bitcoin has been historically positively correlated with the PBOC’s total asset growth… and as such, this serves as another potential bullish catalyst,” Apollo Crypto observed.

Enhancements to DeFi Infrastructure and User Experience

Apollo Crypto has reported that the DeFi infrastructure has experienced a substantial increase in the past few years, creating “an abundance of inexpensive block space.” This infrastructure development has enabled numerous decentralized applications (dApps) to access the block space at “higher performance speeds” and has also resulted in reduced transaction costs for multiple Layer-2 scaling solutions.

Apollo Crypto emphasizes Coinbase’s cbBTC, a tokenized version of Bitcoin, as a potential game-changer that could attract capital to the DeFi space, offering an alternative to conventional exchange-traded funds (ETFs). The Apollo Crypto report indicated that:

“When a user sends bitcoin from their Coinbase account to an address on the Ethereum or Base network, the BTC is now automatically converted into cbBTC at a 1:1 ratio, this will allow users to rotate from BTC into alternative crypto assets with more ease than ever.“

The report also indicates that Aave is the decentralized lending market leader, while Uniswap is the decentralized exchange with the highest trading volume. Despite Maker’s continued recognition as a significant force in the DeFi revival, its recent transition to the Sky ecosystem has garnered a mixed response.