DeFi is ‘waking up again’ – Active loans return to 2022 levels

Decentralized finance (DeFi) may be experiencing a revival, with key metrics such as active loans and total value locked (TVL) on the rise since their more recent lows in 2023. 

Crypto market analytics platform Token Terminal proclaimed that “DeFi is waking up again” in a July 31 post on X.

It backed up this claim with charts and statistics, one of which was for active loans, which have returned to levels not seen since early 2022, at around $13.3 billion.

DeFi lending allows investors to lend out their crypto holdings to borrowers while earning interest on the loans. Lending and borrowing activity is a key metric for gauging DeFi participation and overall market health.

DeFi active loans hit a peak during the crypto bull run of 2021 at $22.2 billion when Bitcoin (BTC $64,436) and Ether (ETH $3,179) were pushing $69,000 and $4,800, respectively. It fell soon after, hitting around $10 billion in March 2022 before plummeting down to $3.1 billion in January 2023.

However, since last year’s low, there has been a significant recovery in DeFi lending, according to Token Terminal. The company added that active loans could mean leverage is increasing, which is a “leading indicator of a bull market.”

DeFi active loans. Source: Token Terminal

DeFi total value locked also took a massive hit in 2023, with TVL falling 80% from its November 2021 peak of $180 billion to around $37 billion by October 2023.

However, since then, the sector has recovered roughly 160%, with TVL now standing at around $96.5 billion, according to DefiLlama.

Additionally, DeFi TVL doubled in the first half of 2024 from around $54 billion to peak at $109 billion in June.

In a July 30 X post, Humble Farmer Academy founder Taiki Maeda commented that the sector is approaching a period of “DeFi renaissance” after more than four years of extreme underperformance.

He was referring specifically to DeFi lending platform Aave, which he said was “poised to outperform” due to the supply of its native stablecoin GHO surging and the Aave DAO taking “great steps to lower costs and introduce new revenue drivers.”

However, according to CoinGecko, the majority of DeFi-related tokens are still in the depths of bear market lows. This category of crypto assets has a market capitalization share of just 3.4%.

Native tokens for some former darlings of DeFi, such as Aave (AAVE $107.94), Curve DAO (CRV) and Uniswap (UNI $7.09), remain more than 80% down from their all-time highs despite the border crypto market being down just 22% from its 2021 peak.