As of December 29, the total value locked in the DeFi space was $247.48 billion, growing by a staggering 1,222% from the January 1 figure of $18.71 billion or at least 13 times, data by analytics platform DeFi Llama indicates. The all-time high value was recorded on December 1 at $260.12 billion. Furthermore, Ethereum’s dominance in the DeFi space is evident, with the network accounting for $154.83 billion or 62% of the total DeFi total value locked. In general, the total value locked (TVL) is an essential indicator that measures the overall growth rate of DeFi. TVL reflects the value of funds users have collectively locked into DeFi projects. DeFi refers to a blockchain-based form of finance that does depend on central financial intermediaries like brokerages, exchanges, or banks to offer traditional financial products and instead leverages smart contracts on blockchains.
Drivers for DeFi space growth
Despite the periodic instances of price corrections, the DeFi space’s significant growth in 2021 has correlated with the general cryptocurrency sector. Notably, the TVL for the industry is heavily dependent on the underlying asset’s price. For instance, Ethereum’s dominance can be tied to ETH price growth in 2021, alongside offering the base for developing various DeFi projects. At the same time, the growth has mainly been driven by DeFi applications involving lending and borrowing of digital assets, derivatives, insurance and even the management of crypto assets. Integral to the growth has been the role of stablecoins, used mainly by liquidity pools to make trading more convenient and intuitive. Additionally, DeFi applications rely on stablecoins to mitigate volatility in crypto markets, attracting investors in the long term.
Concerns about DeFi sector sustainability
However, although the space is attracting capital, it still faces several hurdles along the way to achieving mainstream adoption. Several projects have been vulnerable to hacks and theft of funds, which has led to safety questions about the DeFi space. With the safety concerns, the sustainability of the growth is in doubt, with key players in the sector pointing out that some projects might face extinction. As previously reported by Finbold, Cardano founder Charles Hoskinson projected that most DeFi projects will be extinct in the next five to ten years due to a poor level of engineering. According to Hoskinson, developers should focus more on rigorous engineering for projects to stand the test of time.
