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A Fresh Perspective on the Changing Landscape of DeFi Market

· 3 min read
Dora Noda

There is a constant buzz in the world of cryptocurrency, with new narratives cropping up at regular intervals. While a lot of attention has been given to Shanghai upgrades, BRC20, meme coins, and halving phenomena, the "DeFi Summer" of 2020, a milestone in the rotation of narratives in the crypto world, has been mostly forgotten. However, three years later, there have been some noteworthy developments in the DeFi space worth highlighting.

A Fresh Perspective on the Changing Landscape of DeFi Market

The Declining Attention on DeFi

Post the "DeFi Summer" of 2020, the Decentralized Finance (DeFi) ecosystem has evolved and grown significantly, introducing innovations like decentralized exchanges, lending platforms, derivatives, fixed income tools, algorithmic stablecoins, asset synthetics, and aggregators.

However, after peaking in May 2021, traditional DeFi blue chips like UNI, LINK, SUSHI, and SNX have been seeing a decreasing trend. Leading DeFi projects such as Uniswap and Synthetix and new entries like OHM under "DeFi 2.0" seem to be gradually fading away from the market spotlight. The DeFi narrative, once the darling of the crypto world, has been overshadowed by other emerging narratives like NFTs, DAOs, Metaverse, and Web3.

Fundamentally, the services offered by most DeFi products are similar, with only a few leading products standing out due to their brand and user stickiness. Many platforms rely heavily on their native tokens to incentivize user participation. However, these liquidity rewards can inflate Total Value Locked (TVL) figures temporarily but are not sustainable in the long run, leading to volatility and quick capital movement when new higher yield opportunities arise. This dynamic has led to an overall downtrend in the price of DeFi tokens since 2020.

Innovations in the DeFi Space

Ignoring the declining performance of DeFi tokens in secondary markets, some interesting changes are happening within the DeFi landscape. Notably, leading projects like Curve and MakerDAO have been diversifying their product range, blurring the boundaries between different DeFi protocols.

MakerDAO, traditionally known for its DAI stablecoin, has started venturing into the lending space with the launch of Spark Protocol. This protocol, built on Aave V3 smart contracts, allows users to borrow assets like ETH, stETH, DAI, and sDAI. This is a remarkable shift in strategy and points towards a significant overlap of stablecoin and lending functionalities.

In a similar vein, Aave, primarily known for its lending services, is planning to launch its native decentralized stablecoin, GHO, backed by collateral and pegged to the dollar. Both MakerDAO and Aave's lending mechanisms are based on Aave V3 smart contracts, and it will be fascinating to see who emerges successful in this foray outside their traditional domains.

Curve, which is known for its large-scale asset exchange services, has also recently introduced its stablecoin, crvUSD. With Curve's inherent liquidity advantages, crvUSD seems to have a headstart in the stablecoin race.

Among all these DeFi blue chips, Frax Finance has made significant strides in liquidity collateralization. Its product frxETH has shown exceptional growth since its launch in October 2022, reaching almost 220,000 tokens valued at around $400 million within just 200 days.


The sustainability of DeFi projects that relied heavily on liquidity incentives was always questionable. This reality has prompted leading DeFi protocols to innovate and diversify their product ranges, breaching the traditional boundaries that separated them.