Data shows parabolic-style growth in layer-2-based DeFi and DEX platforms

Layer-2-based DeFi and DEX platforms have seen an incredible surge in user activity, revenue and total value locked since the launch of Arbitrum and Avalanche’s cross-chain bridge.

In the increasingly competitive landscape of blockchain technology and cryptocurrencies, protocol innovation and the ability to solve the biggest problems facing the crypto community are necessary for any project that looks to have long-term success in the ecosystem. 

Recently, the emergence of layer-2 technology like Arbitrum, Optimism and a bridge to the Avalanche ecosystem is revolutionizing the way investors, builders and developers interact with various protocols because each facilitates fast, low-cost transactions that improve the fundamentals of the decentralized finance (DeFi) ecosystem while also making it easier for retail-sized investors to capitalize on opportunities.

According to data from Token Terminal, DeFi continues to be one of the fastest-growing sectors of the crypto economy as evidenced by increases in the total value locked (TVL) on protocols. Some of the biggest gains from last week occurred on cross-chain compatible networks and layer-two protocols that offer a lower fee environment.

Top-6 weekly gainers in total value locked. Source: Token Terminal

Two of the top-6 projects on the list above, Trader Joe and Pangolin, are found in the Avalanche network which has seen significant inflows and an increase in TVL since the launch of an upgraded cross-chain bridge that allows Ethereum-based tokens and applications to migrate to the Avalanche ecosystem.

Top-6 weekly gainers in total value locked. Source: Token Terminal

Governance features have also been a positive factor in helping spark new growth for projects as both Alchemix Finance and Rari Capital have ongoing, or recently completed votes designed to improve their ecosystems and increase community involvement.

The first on-chain proposal was just executed!

2,500,000 RGT has been minted to sustain the DAO!

Thank you to the community for your input and vote.

Treasury address: https://t.co/YVSqAAN4nu

Transaction: https://t.co/EZRKSXT3jv

— Rari Capital DAO (@RariCapital) September 19, 2021

Layer-1 projects and decentralized leveraged exchanges thrive

Another emerging trend shown in the data from Token Terminal is the growing strength of derivatives and options trading protocols as regulators increasingly crack down on centralized exchanges that offer derivatives services and have loose KYC and AML requirements.

Top-6 weekly gainers in protocol revenue. Source: Token Terminal

As shown on the chart above, two of the biggest gainers in terms of protocol revenue over the past week were dYdX and Hegic, a pair of protocols that offer decentralized derivatives and on-chain options trading to investors.

Global regulators have increased their scrutiny on leveraged and derivatives trading platforms in recent months, while at the same time, established exchanges like Coinbase have applied to offer futures trading services, indicating that this is one sector poised for continued growth as cryptocurrencies become more mainstream.

dYdX has also benefited from the fact that it operates on a layer-two solution developed in conjunction with StarkWare that enables cross-margined perpetual's with zero gas costs and minimal trading fees.

Data shows that Ethereum-competitors such as Tezos (XTZ) and Cosmos (ATOM) have al seen an increase in revenue over the past week, suggesting that the layer-1 battle is heating up as high fees on the Ethereum network continue to motivate users to explore other options.