December 5, 2023 at 13:51 GMTModified date: December 5, 2023 at 13:52 GMT
December 5, 2023 at 13:51 GMT

DeFi TVL jumps back to $50B as investors seek yield

The decentralised finance (DeFi) sector total value locked (TVL) hit $50 billion for the first time in six months on Tuesday.

DeFi TVL jumps back to $50B as investors seek yield

With the broader cryptocurrency market refreshing itself in a new bullish rally, the decentralised finance (DeFi) sector rebounded as well. Its total value locked (TVL) hit $50 billion for the first time in six months on Tuesday.

Here, TVL determines the total amount of capital locked or staked across all DeFi protocols. As per the data from DefiLlama, this figure increased by $15 billion in just six weeks.

This happened on the back of rising prices of the underlying assets. Fresh inflows were also coming in as investors sought to secure a yield on their crypto holdings.

The hunt for yields has been quite evident with the newly announced layer 2 (L2) project Blast already receiving more than $700 million in deposits from traders and investors.

This was despite the fact that assets cannot be withdrawn until at least March. Launched by Pacman in November, who is also the creator of NFT marketplace Blur, the L2 did not have a mainnet at inception and is still working on its release.

The platform is now the third largest holder of staked Ether (stETH), as per Dune analytics data. The protocol’s multi-sig holds over $640 million in stETH as inflows poured in.

Other factors 

Ethereum’s shift to a proof-of-stake blockchain also spurred the liquid staking market. Liquid staking is a form of derivative that allows investors to generate a yield from staking Ether whilst also receiving a token. This token can be used elsewhere across the DeFi ecosystem.

The transition, in turn, gave rise to the likes of Lido and RocketPool, which combined are responsible for 45% of DeFi’s TVL. Currently, Lido offers an annual yield of 3.7% whilst RocketPool offers 3.92%.

Ether ($ETH) has significantly risen in value too, by 42% since October. This is important to consider since the altcoin is a primary asset used across the DeFi market. Its rise also overtook the whole DeFi market, which only increased by 41% during the same time period. 

On the other hand, a significant portion of DeFi protocols offer yields on stablecoins as well. These assets are pegged to traditional fiat currencies like the dollar, euro or sterling. 

In this regard, transactional volume also increased where more than $5.4 billion changed hands on a single day last month. This has been the highest level since March of this year.

A similar trajectory has been noted in the value locked on Solana-based protocols. The TVL of the ones like marginfi, Jito and Marinade Finance has jumped by between 60% and 120% in the past 30 days as Solana continued to attract institutional interest.

The demand from the institutional market was visibly noted when Grayscale’s Solana Trust traded at an 869% premium last month. Solana’s liquid staking protocol, Jito, offers stakers a yield of 6.96%. This staking yield level has led to $327 million in inflows since 13 October.

The DeFi sector has significantly improved compared to August when the amount of money stashed in these protocols dwindled to multi-year lows. Back then, its TVL slumped to $37.5 billion, the lowest level since February 2021. 

This was a repercussion of a prolonged crypto winter where tokens crashed in price, coupled with multiple scandals in the sector. However, as the year comes to an end, the anticipation for a potential spot Bitcoin ETF approval from the SEC seemed to raise hopes in the market again. The broader crypto market was recovering as its market capitalisation climbed back to $1.61 trillion over last weekend.