Surge in activity and token prices show ‘DeFi Summer 2.0’ already started

DeFi platforms have seen a steady surge in user activity and token prices, leading some analysts to say that the ‘DeFi Summer 2.0’ is well underway.

After a blistering start to 2021 saw token valuations and trading volumes surge to ignite the current bull market, the DeFi sector as a whole took a break while the NFT sector stepped into the limelight.

While investors' attention was elsewhere, DeFi prices have had time to consolidate and project developers were able to focus on protocol upgrades and in the past month, DeFi-related tokens have been gaining traction and look poised for a breakout in September. 

DeFi Index perpetual futures 4-hour chart. Source: TradingView

Data from Cointelegraph Markets and TradingView shows that multiple DeFi tokens, including Aave (AAVE), Synthetix (SNX), YFI and SushiSwap (SUSHI) have rallied nearly 40% since May 10, while the price of BTC is still 27% away from its all-time high.

The recent bullishness in DeFi tokens prompted some analysts to point out that the ‘DeFi summer 2.0’ did in fact take place, and at a much larger scale than anyone anticipated.

Y’all wanted DeFi summer 2.0? Well it’s here, but at much larger scale and multichain.

First Matic with its $40M incentive program (1% of supply)

Then Avalanche with $180M (now worth ~$450M)

Today Fantom and Celo with $300M and $100M, respectively.

Solana and Terra next?

— Ryan Watkins (@RyanWatkins_) August 30, 2021

On-chain metrics show DeFi is heating up

Evidence that the DeFi space is heating up can be found in various on-chain metrics that indicate a healthy amount of trading activity and an increasing number of new users interacting with DeFi and DEX protocols.

According to data from Dune Analytics, the number of new participants coming into the DeFi ecosystem has risen non-stop over the past year reaching a record 3,285,643 total users as of Aug. 31.

Total DeFi users over time. Source: Dune Analytics

The steady addition of new users has helped to keep activity on DeFi lending protocols and decentralized exchanges (DEX) elevated, with data from Dune Analytics showing that the weekly DEX volume in August reached levels not seen since late May.

Weekly DEX volume. Source: Dune Analytics

For those who are concerned that high transaction fees on the Ethereum (ETH) network may limit the ability for smaller investors to engage with the sector, the growing field of layer-two (L2) solutions like Loopring (LRC) and cross-chain bridges to competing networks like the Solana, ensure that portfolios of all sizes will be able to partake in DeFi investin.

One of the best examples of this has been the rapid rise of the Polygon (MATIC), a layer-2 network that has emerged as a top-ranking blockchain in regards to total value locked (TVL). Data from Defi Llama shows that Polygon is now the fourth-ranked chain in terms of TVL with more than $4.93 billion locked in the network.

Total value locked rankings. Source: Defi Llama

With Bitcoin still struggling to gain momentum below $50,000, it’s possible that the market is headed toward an altcoin season and if that occurs, the top DeFi protocols with strong long-term fundamentals are likely to benefit from the bullish momentum.