DeFi Summer 2024 vs DeFi Summer 2020 — The New Era

The summer of 2020 — fondly remembered as the “DeFi Summer” of 2020 — was an incredible time for the crypto industry.

The time was marked by the growing popularity of decentralized finance (DeFi) lending platforms and exchanges such as MakerDAO (MKR), Uniswap (UNI), Compound (COMP), Synthetix (SNX). More people were flocking to the DeFi world than ever before, attracted by innovative products such as liquidity pools, yield-bearing cryptos, and incentive programs.

Subsequently, the year saw total locked value (TVL) across all crypto networks cross the $1 billion mark for the first time. Fast-forward to 2024, and we see that crypto TVL has surged nearly 100 times to over $100 billion, yet no one is talking about a DeFi Summer in 2024.

You have to look past the stagnant crypto prices to realize that a DeFi Summer 2024 is upon us.

Let’s compare the two eras of DeFi to see how far we have come.

Table of Contents Table of Contents

1. Key Takeaways
2. DeFi Summer of 2020 vs DeFi Summer of 2024
3. DeFi Summer of 2020
4. DeFi Summer of 2024
5. New Stablecoins for DeFi Summer
6. The Bottom Line

Show Full Guide

Table of Contents

1. Key Takeaways
2. DeFi Summer of 2020 vs DeFi Summer of 2024
3. DeFi Summer of 2020
Show Full Guide
4. DeFi Summer of 2024
5. New Stablecoins for DeFi Summer
6. The Bottom Line

DeFi Summer of 2020 vs DeFi Summer of 2024

How DeFi metrics have changed over the last four years:

Source: CoinMarketCap, DeFiLlama, TokenTerminal

DeFi Summer of 2020

Back in the Summer of 2020, the DeFi sector was mainly made up of decentralized exchanges (DEX) and lending platforms. Ethereum (ETH) hosted nearly all of the popular DeFi protocols. Liquidity pools and yield farming were the latest obsession of crypto-native individuals.

At the time, Bitcoin (BTC) was struggling to break the $10,000 mark having seen a price slump after its run-up of a then-record high of over $19,000 in late 2017. Meanwhile, Ethereum was seeing more of the investor spotlight after the initial coin offering (ICO) boom of 2017 showcased its potential to host the world of decentralized finance.

The projects born in the ICO era like lending platform Aave (then known as ETHLend), derivatives exchange Synthetix (previously known as Havven) and inter-blockchain liquidity liquidity protocol REN would go on to disrupt the monolithic global finance industry.

Out of all the DeFi projects, a decentralized lending platform called Compound became the face of DeFi Summer in 2020 when it launched a governance token called COMP and began distributing it to lenders and borrowers on its platform.

In doing so, Compound became one of the first crypto companies to decentralize itself, allowing token holders to participate in protocol governance. Many others would follow suit.

The token incentive programs that Compound used to distribute its native tokens laid the groundwork for airdrop designs that are popular today.

DeFi Summer of 2024

Today, DEXs, liquidity pools, collateralized crypto loans, and governance tokens have become the norm. DeFi is no longer just about trading and lending. New crypto trends like liquid staking protocols, restaking, native yield and real world asset (RWA) tokenization have created a more vibrant DeFi ecosystem.

A Multichain DeFi Summer

DeFi has also become more multi-chain than ever before. Back in the DeFi Summer of 2020, Ethereum dominated the DeFi scene accounting for over 95% of TVL on all crypto networks. That number has reduced to 62%, at the time of writing, DeFiLlama data showed.

Close to a third of total TVL is divided among rival L1s such as BNB Chain (BNB), Solana (SOL), Tron (TRX), and across various L2 networks.

Interestingly, Bitcoin accounted for 1% of total TVL, as of June 2024. The emergence of token standards Ordinals and Runes introduced DEXs on Bitcoin and created new markets of Bitcoin NFTs and memecoins.

“Bitcoin is no longer a ‘plain vanilla’ blockchain anymore, where nothing happens other than holders simply ‘HODL’ BTC … Bitcoin is experiencing a ‘Defi summer’-like moment that Ethereum did back in 2020,” said Gautam Chhugani and Mahika Sapra, analysts at brokerage firm Bernstein in April 2024.

Yield Becomes the New Normal

When Ethereum completed its transition from a proof-of-work (PoW) blockchain to a proof-of-stake blockchain in September 2022, ETH became a yield-bearing asset overnight.

ETH staking has made it easier than ever to earn yield on idle tokens. Liquid staking protocols went a step further by allowing users to earn yield on their ETH without locking up their tokens.

Ethereum liquid staking is so popular that liquid staking protocol Lido accounts for one-thirds of total TVL across all networks, as of late-June 2024.

Now, a recently-launched Ethereum L2 called Blast is offering users offering native yield on ETH, which means that ETH holders on Blast automatically receive staking yield on their tokens.

However, the hero of the DeFi Summer of 2024 has been EigenLayer — a protocol that pioneered restaking on Ethereum. Restaking unlocks an additional layer of yield for Ethereum stakers while extending the? crypto economic security of staked ETH further.

The concept may be hard to grasp at first, but you will get it once you read Techopedia’s article on EigenLayer.

The two latest DeFi narratives — native yield and restaking — have been immensely popular. Within the first six months of 2024, EigenLayer’s TVL has surged from $1.3 billion to $17.9 billion, making EigenLayer the second-largest DeFi protocol in the world, behind Lido.

Similarly, the four-month-old Blast has attracted $1.5 billion worth of crypto to its chain, making it the third-largest Ethereum L2 behind Arbitrum (ARB) and Base in terms of TVL.

Image: EigenLayer TVL surged from $1.3 billion to $17.9 billion in the first six months of 2024; DeFiLlama

DeFi Stalwart MakerDAO Champions RWA Tokenization

We have to discuss RWA tokenization, a crypto theme that is changing the way we view DeFi.

The chief RWA tokenization player among DeFi protocols has been the “OG” MakerDAO.

As a part of its Endgame strategy, MakerDAO has converted itself from a stablecoin protocol to an RWA protocol that gives crypto users exposure to off-chain assets such as US Treasury bonds.

As of June 27, 2024, 38% (or $1.95 billion) of total supply of MakerDAO’s collateralized stablecoin DAI was backed by RWA such as cash and short-term government bonds, data on makerburn.com.

However, MakerDAO’s RWA foray has divided opinion. Advocates believe that RWA collaterals will safeguard DAI stablecoin from crypto market shocks, while critics warn that DAI is losing its decentralization roots and becoming more susceptible to traditional finance forces.

New Stablecoins for DeFi Summer

DeFi Summer of 2024 also brought new stablecoin designs to the market.

No, we are not talking about algorithmic stablecoins that nearly took the entire crypto industry down in 2022 when Do Kwon’s Terra protocol collapsed.

We are talking about Ethena, which does not prefer to call its US dollar-pegged token a “stablecoin.” Instead, Ethena calls it a “synthetic dollar.”

Ethena’s synthetic dollar USDe utilizes the innovations in Ethereum staking to maintain the token’s dollar peg.

USDe is backed by staked ETH. In order to maintain its dollar peg, USDe uses short ETH hedges on exchanges to achieve a delta-neutral approximate dollar position.

Additionally, users can stake USDe tokens to earn a yield-bearing token called sUSDe. sUSDe earns yield from the underlying staked ETH and the funding rate earned from short ETH positions. Ethena calls this instrument the “internet bond.”

According to DeFiLlama, USDe circulation has increased from $85.9 million at the start of 2024 to $3.57 billion by late June 2024.

The Bottom Line

Crypto observers who only focus on market prices risk missing out on the innovations being developed behind the scenes.

Crypto TVL may not be at record levels seen in November 2021, but the crypto industry of 2024 feels anchored today without the wild speculation and expectations of a bull market.

We highlighted new stablecoin designs, restaking narratives, and RWA tokenization growth, but we have not even mentioned the improvements in user experience (UX) from smart wallets and account abstraction technology that will soon change DeFi forever.

DeFi Summer of 2024 is upon us. We can’t wait to see what it has in store for us.