DeFi has been a stable story in a crazy year for the crypto market.
This article is part of the Year in Review series.
Well, that was insane.
The crypto market in 2021 has set new standards for volatility, wealth creation, and sheer weirdness. We looked at what happened when the market capitalization of cryptocurrencies exceeded $3 trillion. We were equally surprised to see Doggy Tokens, Joke Tokens, and Gaming Tokens capture investors' imaginations. And Elon Musk created and evaporated billions of dollars in value with his latest outlandish tweet drop.
But beneath the madness, an orderly story unfolded, and it was all about DeFi. In a year in which Ethereum and its ecosystem have proven their usefulness and agility, the sector's market value has risen more than 600% to $163 billion, and Total Value Locked (TVL) has increased by 12 times Now it's $245 billion.
Let's look at some numbers from 12 months ago. On January 1, 2021, ETH was trading at just $738, compared to its current price of $4,091. A year ago, Uniswap's market cap was just over $1 billion; now it's close to $9 billion. And Axie Infinity, a blockchain game, became a market favorite this summer, and the value of its token, his AXS, increased more than 170 times. This ushered in a whole new category in cryptocurrencies: GameFi.
Long-time blue chips Uniswap, Aave, Curve, MakerDAO, and Compound consolidated their dominance in DeFi, with these five protocols accounting for 29.4% of TVL and 10.4% of market capitalization. Meanwhile, newcomers such as Convex Finance, OlympusDAO, and Abracadabra have also emerged as dominant protocols.
And even though Ethereum's soaring fees and usage clouded the picture for some investors, Layer 1 adopted compatibility with Ethereum Virtual Machine (EVM) to attract DeFi TVL. Binance Smart Chain, Solana, Terra, and Avalanche gained significant market share while building a cross-chain ecosystem and became the main storylines in the second half of this year.
DeFi token market capitalization Source: Coin Gecko
It didn't have to happen this way. The virtual currency market entered 2021 with a serious overhang. The Covid-19 pandemic has disrupted the global economy, and the tough US presidential election has added to market volatility.
However, with growing interest in Bitcoin as an uncorrelated store of value, institutional investors have begun to accumulate BTC, and the halving of Bitcoin's third block reward has significantly increased the creation of new supply. There were also expectations that the market would decline and a new market cycle would begin.
The launch of the Ethereum 2.0 beacon chain in early December also went without a hitch, with ETH expected to be one in a series of upgrades to help complete the transition from proof-of-work to proof-of-stake consensus. It has approximately doubled in months. First half of 2022.
As expected, this year started off with a bang. The Chicago Mercantile Exchange launched Ether futures contracts, stimulating demand from Wall Street. Tesla then announced that it would invest $1.5 billion in Bitcoin and accept the cryptocurrency as payment for its electric cars, sparking a surge in institutional investors and further promoting the cryptocurrency to mainstream investors. Then along came Dogecoin and an ironic speculative frenzy that saw the token soar 173% in his two weeks in May.
The NFT boom coincided with the crypto market's surge to all-time highs in November. NFTs also fit into the rise of his Axie Infinity, GameFi, and other blockchain games that leverage innovations in tokenomics.
Dogecoin was quickly eclipsed by NFT mania.dapper labs nba top shot Proving the use case for blockchain-powered collectibles, digital artist Beeple surprised the art world in March by selling his work. every day, It sold for an astonishing $69 million at the venerable auction house Christie's. This was the third most expensive work ever sold by a living artist. It was met with disdain from intellectuals, but it also sparked enthusiasm from up-and-coming artists and collectors. And celebrities continued to flock in, from Snoop Dogg to Katy Perry to Melania Trump to Ice Cube, who spoke about his experiences with the media with The Defiant's Robin Schmidt.
The NFT boom coincided with the cryptocurrency market soaring to all-time highs in November. NFTs also fit into the rise of his Axie Infinity, Play-to-Earn, and other blockchain games that leverage innovations in tokenomics. That fueled the hype around the Metaverse and contributed to the sense that the cultural moment is driving the market, even though there's as much hype injected as innovation.
The surge in activity on Ethereum has been both a blessing and a curse. For example, Binance Smart Chain (BSC) gained significant DeFi market share and its TVL of $31 billion in Q2 by offering EMV compatibility and low fees. However, this comes at the cost of security and centralization, with delegated proof-of-stake consensus leaving network validation in the hands of a small group, and BSC-based protocols making it easier for organized hackers to This is because he has become a regular target of.
Binance Smart Chain TVL Source: DeFi Llama
Following the market crash in May, the v3 version of Uniswap has made decentralized liquidity provision more efficient. Additionally, the yield tokenization sector was launched by Pendle and Element Finance. The algorithmic stablecoin sector also experienced a resurgence due to the popularity of OlympusDAO's five-digit APY and growing reserves of protocol-managed assets, which later spawned a number of forks, including Avalanche's Wonderland and Polygon's KIimaDAO.
Ethereum’s unwavering fees have made EVM-compatible chains among the first crypto assets to record a bullish recovery from a downtrend. Spearheaded by Polygon, he amassed his TVL of over $10 billion in June after his PoS sidechain attracted top DeFi protocols such as Aave, SushiSwap, and Curve.
Polygon TVL Source: DeFi Llama
However, the Polygon network lost market share after peaking in July. Q3 sees Solana, Terra, and Avalanche rise to Binance Smart Chain's No. 2 chain status by DeFi TVL as traders speculate about low-cost, scalable Layer 1 supporting EVM compatibility. has emerged as a serious threat.
Solana, Terra, and Avalanche have all boasted TVLs of over $10 billion each in recent months after starting Q3 with just $631 million, $3.34 billion, and $189 million, respectively. I did.
Top-class chain in terms of DeFi TVL share. Source: DeFi Llama
By October, many top cryptocurrencies had erased their mid-year losses, with Bitcoin, Ethereum, Solana, and Polkadot all hitting new all-time highs heading into November.
The NFT sector was also hot again in Q3, with apparently rare avatar JPEGs trading for hundreds of thousands each, and governance tokens for high-profile play-to-earn titles like Illuvium and Gods Unchained seeing four-digit price increases. Ta. Within six months, Disney, Universal, pepsi.
Search traffic for the keyword “NFT” is significantly higher than “Ethereum” and “Blockchain.”
Global search volume for “NFT”, “Blockchain”, “Ethereum”, “Dogecoin”, “Defi”. Source: Google
Everything went sideways in December, with Bitcoin and Ethereum down more than 30% from their all-time highs.
Still, many traders think this lull won't last long. Ethereum's Eth2 chain merge is approaching, and Polkadot's upcoming parachain ecosystem is also seen as a fundamental catalyst that could send the market back into high gear.
BTC/USD Source: CoinGecko
ETH/USD Source: CoinGecko
