DeFi Revives as Active Loans and Total Value Locked Returns to 2022 Levels

Several DeFi tokens have yet to recover from the 2022/2023 crypto winter, still struggling to rebound from bear market lows.

However, there's been a glimmer of hope recently. Data from the crypto analytic platform Token Terminal shows a notable uptick in total value locked (TVL) and active loans.

According to the data, DeFi lending and TVL are gradually rising from the 2023 lows to the levels last seen in early 2022. This observation suggests the bulls are returning to the market.

Lending Rates Picks Up with Total Value Locked Rising

Token Terminal declared that DeFi is waking up. The platform supported its claims with a chart showing that active loans have increased to approximately $13.3 billion. This level was last seen in early 2022, before the onset of the crypto winter.

DeFi waking up again pic.twitter.com/xrkQqCxGHE

- Token Terminal (@tokenterminal) July 31, 2024

For context, lending is part of DeFi protocols' services, which allow investors to lend their crypto assets to borrowers at an interest rate. This activity forms a key metric for assessing and determining DeFi growth and participation, including the overall market condition.

Active loans on DeFi platforms peaked during the 2021 crypto bull run, reaching $22.2 billion. During this time, Ethereum and Bitcoin prices increased to $4,800 and $69,000, respectively.

However, in March 2022, it declined to $10 billion, further plummeting to $3.1 billion in January 2023. Since hitting this low, DeFi lending has significantly recovered, per Token Terminal data.

The analytics platform further explained that the uptick in active loans suggests that leverage is increasing, a key bull market indicator.

Meanwhile, lending is not the only metric that has increased. Token Terminal's report shows that DeFi Total Value Locked (TVL) has also improved.

The overall TVL on DeFi platforms plummeted in 2023. DeFi TVL declined by 80%, falling from the $180 billion recorded in November 2021 to $37 billion in October 2023.

However, it has since recovered, surging by approximately 160% from the 2023 lows to about $96.5 billion, according to data from DefiLlama. Also, in the first half of 2024, DeFi TVL doubled from ~$54 billion to $109 billion in June.

Taili Maeda, founder of Humble Farmer Academy, commented on the sector's improvement. After over four years of underperformance, the decentralized finance sector is nearing what he called the DeFi renaissance" period.

I believe we are approaching a period of DeFi renaissance after 4+ years of extreme underperformance.

A lot of these DeFi OGs are now in the category of "high float, low FDV" coins with strong catalysts on the way.

Here's why I believe $AAVE @aave is poised to outperform pic.twitter.com/gaTZpKOfdg

- Taiki Maeda (@TaikiMaeda2) July 29, 2024

Maeda's remark referred to the leading DeFi lending platform, Aave. He noted that Aave would outperform as the supply of GHO, the platform's native stablecoin, is increasing. Maeda also noted that Aave DAO has taken significant steps to reduce costs and introduce revenue-driving initiatives.

DeFi Tokens Remain Down Despite Recent Market Recovery

Despite the improvement in the DeFi sector, DeFi-related cryptocurrencies remain stuck in bear market lows. CoinGecko data shows these crypto assets occupy only 3.4% of the overall crypto market capitalization.

Utility tokens for top DeFi platforms such as Curve DAO (CRV), Aave (AAVE), and Uniswap (UNI) are still over 80% down from their all-time highs. Meanwhile, the broader crypto market has recovered significantly from the 2022 crypto winter, presently only down 22% from the 2021 peak.

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