DeFi TVL is down 66%, but the growth in DEX pools, active addresses, and the steady growth of funds shows that the “DeFi winter” is not upon us.
The total value booked in the crypto market (TVL) measures the amount of money invested in smart contracts, which fell from $160 billion in mid-April to $70 billion, the lowest level since March 2021. The percentage contraction is alarming, which indicates that many centers Data Financial Industries (DeFi) is flexible.
The problem with using TVL as a broad metric is that there is no detail left out. For example, the scale is not reflected in the number of DeFi transactions in the ecosystem, the growth of Tier 2 scaling solutions, and the inflows of venture capital.
Data from DappRadar’s July 29th Crypto Adoption Report shows that the number of DeFi 2Q transactions decreased by 15% compared to the previous quarter. This number is much less alarming than the devastating decline in TVL and is supported by a 12% drop in the number of unique active wallets over the same period.
The second layer is the path to sustainable DeFi growth
Iakov Levin, CEO and founder of Midas Investments, told Cointelegraph:
“I firmly believe that the current bear market is not the ‘end’ of the DeFi industry. For example, there is increasing competition between decentralized exchanges in Optimism, the tier-2 scaling platform for Ethereum, while Velodrome has surpassed $130 million in TVL.”
Optimism is an Ethereum scalability solution that uses layer 2 to pool off-chain transaction validations, reducing transaction and transaction costs for decentralized applications on the network.
Optimism TVL network million US dollars. Source: Devi Lama
Venture capital inflows support the sustainability of the DeFi thesis. On July 12, cryptocurrency-centric Multicoin Capital launched a $430 million fund. The investment management company was founded in 2017 and aims to focus on developing Web3 infrastructure, DeFi applications, and standalone business models.
On July 28, Variant announced the successful raising of $450 million in capital to fund “financial empowerment through DeFi,” among other things. The strategy includes financing and productivity of NFTs, stablecoins, lending optimizers, DEX aggregators, and “products that connect the legacy financial system to DeFi.”
These large increases in funding led Levin to believe that scaling solutions would take decentralized finance applications to the next level in a way that wasn’t possible during the so-called “DeFi Summer 2.0” in Q3 2021. At the time, fees were over $25, Which makes it almost impossible for requests to get heed. Levine, CEO of Midas Investments, said:
“Ultimately, I see Level 2 as a potential catalyst for industry growth. This is optimistic and will result from increased scalability due to the implementation of zk-Rollups solutions. Cheaper transaction fees and near-instant approvals for users. Level 2 user experience will improve exponentially and will soon have the ability to catch the wave of of new users.
Metamask Swap and 1-inch mesh stand out
According to data from DappRadar, the number of active addresses using DeFi applications has remained fairly stable over the past 30 days.
Leading DeFi applications based on 30-day active addresses. Source: DappRadar
The data shows an average drop of 2% in active addresses, but four of the top five apps showed growth. In addition, the 1-inch Network and MetaMask DEX pools have brought significant gains to users, alleviating “DeFi winter” concerns.
In summary, the decentralized finance sector continues to grow in terms of active addresses, venture capital investments, and innovative solutions that provide cheaper and faster transaction capabilities compared to the last peak at the end of 2021.
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