The DeFi craze of 2020 may be stretching out to 2021. Recent analysis has highlighted several reasons why the DeFi sector is booming once again.
It is important to note that 2020 has been dubbed the year of DeFi due to the amazing adoption and massive DeFi rally recorded, especially in Q3 of 2020. The DeFi surge, however, seems to be extending to 2021. Many factors have been identified as the cause of the current DeFi rally. Some of them include increased adoption by retail traders, partnerships between top players in the DeFi space, rising TVL, and more.
Reasons Behind the DeFi Boom
This article covers in detail several reasons why the DeFi space is once again booming.
Strategic partnerships among top DeFi protocols
Several mergers and partnerships have occurred among high-flying DeFi protocols. These partnerships are resulting in the pulling together of funds, thereby making more funds available and accessible to DeFi protocols. One such strategic partnership happened between Yearn.finance and SushiSwap in December 2020.
Increase in Total Value Locked (TVL) in DeFi
According to Messari, DeFi tokens over the last 30 days have seen a price increase of about 20%. Some DeFi tokens, however, experienced a price rally as high as 100%. These include Synthetix (SNX), Maker (MKR), and SushiSwap (SUSHI).
DeFi Assets (Source: Messari)
Notably, from January 1 to January 9, 2021, Total Value Locked (TVL) in DeFi increased from $15.678 billion to a new high of $23.092 billion. Interestingly, this increase occurred alongside Bitcoin’s rally to $41,940 ATH and Ethereum’s price increase to $1,300.
The DeFi rally is riding on BTC and ETH
The slowing down of the price rally for both Bitcoin and Ethereum could also be gearing the DeFi space for its next rally. This is because more and more retail investors are looking for ways to maximize their yields. With this in mind, they are turning from Bitcoin to the DeFi space.
Data from Messari has shown that Bitcoin rallies, over time, usually have a ripple effect on altcoins. However, when there is a correction, DeFi tokens usually experience a price rally. In other words, current Bitcoin consolidation could be signaling the onset of a DeFi rally.
Volume is one of the most important metrics used to measure how successful a DeFi project is. The DEX volume can easily be calculated from the daily volume of a DeFi protocol over a specific period.
2021 saw a remarkable increase in the volume of several top DeFi protocols. DEX volume skyrocketed from $900 million on January 1 to $2.4 billion on January 4, 2021.
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