Cold winter or recovery? 2023 DeFi battle review: total market capitalization back above $50 billion, DEX volume hits a new high.

In 2023, Decentralized Finance (DeFi) has shown signs of recovery after experiencing a "winter." The total market capitalization of DeFi has returned to $56 billion, up approximately 65% from about $32 billion at the beginning of the year, but still far below the peak of $170 billion in November 2021. This article will review the development of the DeFi market in 2023 from multiple dimensions and reveal the key trends behind it.

1. Locked Amount and Market Capitalization: Dawn is Breaking

From the perspective of market capitalization, DeFi showed signs of recovery in 2023, with the total market capitalization increasing from 32 billion USD to 56 billion USD, but there is still a significant gap compared to the peak of 170 billion USD in November 2021. Specifically regarding the total value locked (TVL), denominated in USD, it has grown from 39 billion USD at the beginning of the year to the current 47 billion USD, an increase of about 20%, but there is still a significant gap compared to the high point of 240 billion USD in December 2021.

It is worth noting that the TVL situation measured in ETH is relatively stable, currently locking approximately 24.2 million ETH, an increase of about 15% from 21 million ETH at the beginning of the year, but still significantly lower than the peak of 33 million ETH in November 2021. This indicates that part of the increase in TVL comes from the rise in ETH prices.

2. Decentralized Exchanges (DEX): Volume and Price Rise Together

DEX is the most active track in Decentralized Finance, with a volume of approximately $1.3 trillion in 2023, a slight increase from $1.2 trillion in 2022, indicating strong fundamentals. A certain DEX still dominates, holding a market share of about 52%, followed closely by a certain trading platform with 27%.

It is worth mentioning that this data does not include DEXs in the Cosmos ecosystem, such as Injective, which have also shown good growth momentum recently.

3. Lending Track: Innovation Steadily Advancing

Decentralized Finance lending is another key track apart from DEX. Currently, Compound Finance, a certain lending platform, and another lending platform occupy the main shares of the DeFi lending market. In 2023, lending protocols actively innovate while maintaining basic functions. For example, a certain lending platform combined its lending function with lending pools to launch the Morpho Blue protocol; Compound Finance is initiating its V3 architecture aimed at improving asset utilization and allowing the creation of markets without governance.

It is worth noting that although the overall scale of the DeFi lending market has not yet recovered to historical highs, positive changes have begun to emerge. With the rapid development of the ETH staking derivatives market, the lending market is also starting to form new growth points.

4. Liquidity Staking Derivatives (LSD): The breakout point of 2023

Liquid Staking Derivatives (LSD) are a highlight in the Decentralized Finance field in 2023. Previously, users who staked ETH could only passively wait and could not utilize this portion of their assets. However, now after staking ETH, users can obtain derivative tokens that represent their rights, such as stETH, and further use them within the DeFi ecosystem.

According to data from the platform, approximately 30% of ETH is currently staked in the market, with nearly 60% of it being done through LSD protocols, with stETH being the main participant. In addition, the liquid staking derivative market has begun to show a trend of diversification, not only focusing on ETH but also extending to proof of stake (PoS) tokens from other networks.

5. Derivatives Track: Potential and Challenges Coexist

The DeFi derivatives market has not yet fully developed, but the growth potential is enormous. Currently, perpetual contracts are the most popular type of DeFi derivatives, while the options market is also gradually taking shape. Protocols like GMX and dYdX are active in this field. In the future, with the further development of Layer 2 and the continuous improvement of smart contracts, the DeFi derivatives market is expected to usher in a greater explosion.

6. Bottlenecks and Dawn: The Evolution of DeFi

Despite showing some signs of recovery in the DeFi market in 2023, it still faces a series of long-term challenges. First, blockchain congestion and high gas fees hinder ordinary users' participation, reducing market activity; second, inadequate user interface and experience remain major obstacles; finally, regulatory uncertainty also puts some pressure on the market.

However, with the rise of Layer 2 solutions, enhanced cross-chain interoperability, and gradual improvements in user experience, the DeFi industry is gradually addressing these challenges. In particular, as a large number of institutional investors have started to show interest in blockchain and crypto assets, there may be more traditional financial resources flowing into the DeFi sector in the future.

7. Outlook for 2024: Finding the Next Turning Point in Decentralized Finance

展望2024年,DeFi行业可能将继续其复苏之路。 以Ethereum EIP-4844升级有望大幅降低L2网络的交易成本,使DeFi应用更具浦适性; 同时,Real World Assets(RWA)与DeFi的结合将加速发展,将传统金融资产引入区块链; 另外,随着加密监管框架的逐步明确,机构资金可能有更多的流入DeFi 市场。

For investors, there are several potential opportunities to focus on: mature protocols in the DEX and lending sectors; innovative projects actively integrating RWA; and platforms that build cross-chain liquidity and interoperability. Of course, investors should also remain vigilant about market risks and conduct thorough due diligence.

Conclusion: After experiencing the "darkest moment" of 2022, the DeFi market has shown resilience and adaptability in 2023. Looking ahead, with the continuous development of technology and the enrichment of application scenarios, DeFi is expected to continue expanding its influence and open up new possibilities for financial innovation.

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