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DeFi lending revenues peak despite subdued token prices

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DeFi lendingDeFi is evolving, boosted by interest in Ethereum ecosystem

In this post:

  • DeFi lending revenues favor top protocols.
  • The sector’s tokens look undervalued compared to other crypto narratives.
  • MakerDAO and Aave lead in revenues, showing a growing interest in the Ethereum ecosystem.
  • DeFi lending remains highly risky, especially when the liquidity is re-circulated in the ecosystem.

DeFi lending is at a new stage, where revenues from fees are growing despite relatively low token prices. The lending sector is recovering after two years of a bear market, besides the fallout of the FTX exchange and the damage from the Terra (LUNA) protocol. Now, a new selection of projects is printing higher revenues. 

DeFi lending shows signs of growth and evolution, boosted by interest in the Ethereum ecosystem. The performance of DeFi blue chips, including Uniswap and MakerDAO, is also carrying the sector forward. 

Read: Top 10 Decentralized Finance (DeFi) Facts Everyone Should Know

DeFi protocols also show rising fees, a sign of user interest, and significant value transfers. The two leading protocols, Aave and MakerDAO, have also shown positive net revenues in the past six months. In the short term, the performance of lending protocols varies, but 2024 reveals a positive overall trend. DeFi lending performs better during a bull market and may enjoy a return of risk-takers if the meme coin narrative slows down.

Some DeFi and lending protocols offer tools to share revenues with token holders. The total market cap of lending tokens is around $9.7B, or 10% of the valuation of all DeFi assets. 

Despite the use cases and earnings, smaller protocols have yet to break the $1B market cap barrier. Some lending tokens are considered undervalued compared to smaller projects, meme tokens, or less active protocols. DeFi tokens have also yet to recover from their peaks in previous bull markets.

DeFi lending aims to regain trust

DeFi lending is becoming attractive as several factors align to boost its reliability. The system still carries risk, but it can be lowered by using stablecoins for lending. The relatively stable Ethereum (ETH) market price also helps avoid liquidations. 

Lending allows holders to use their crypto while loan recipients can reinvest the risk. The presence of valuable collateral further boosts lending’s size, turning it into one of DeFi’s growth sectors.

In 2024, the talk of “Bitcoin DeFi summer” has not materialized. Bitcoin still hosted some DeFi protocols but made up only 1% of DeFi. Ethereum expanded to more than 61% of all DeFi activity, with close to $62B in value locked. DeFi value locked for the leading blockchains. Ethereum still dominates the DeFi market, expanding its share in June as the chart below shows.

Ethereum is still the heavyweight in DeFi value, but Base is the most actively growing chain for DeFi apps. Source: DeFi Llama

TRON has surpassed BSC and Solana in terms of DeFi value reported. Base is the most rapidly expanding host of DeFi and DEX apps, but so far only carries 1.63% of the sector’s value. 

Also read: Aave price prediction 2024-2030: Is AAVE a good investment?

Base aims to promote USDC usage and ensure its DeFi lending protocols are low-risk. USDC carries the extra security of not being exploitable, as the token can be frozen during a hack or theft.

DeFi lending still contains risk

The rise of DeFi lending also coincides with new offers of high-yield products. High-yield products are inherently riskier and may suffer even with a small market downturn. 

The most problematic protocol in DeFi lending remains Curve Finance because the CRV token’s low liquidity when used as collateral makes it difficult to liquidate. Despite this, Curve still finds users and generates fees. Curve remains among the top protocols regarding users while trying to solve its liquidation issues. 

Lending is also used to generate liquidity, which flows into DEX structures. Projects like Fluid Protocol offer loans, which turn into leveraged liquidity positions. While this approach can extend the reported value, it is also causing dependencies and additional risk in loan liquidations. 

On Fluid Protocol, borrowers can post their collateral and also use it as liquidity in automated trading pairs. This approach, however, leaves Fluid Protocol to deal with the risk of both liquidity draining and loan liquidation. 


Cryptopolitan reporting by Hristina Vasileva

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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