This time last year, decentralized finance markets hit their first major milestone by reaching a billion dollars in total value locked. Twelve months on and the sector has expanded by a whopping 3,400%.
Over the weekend, total value locked (TVL) across decentralized finance protocols hit an all-time high of $35 billion, according to DeFi Pulse. It has currently retreated by a billion dollars today, but that amount was the total invested in DeFi this time last year, which is a testament to the fledgling financial industry’s monumental growth.
Around one year ago today, #DeFi was celebrating crossing $1B TVL for the first time.
Now, there's over $33B TVL and it takes at least $1B TVL to make it into the top 10 on https://t.co/ewHfSD8pv3 pic.twitter.com/M6UQmvVXDG
— DeFi Pulse 🍇 (@defipulse) February 8, 2021
A similar level of growth in 2021 would see TVL at over a trillion dollars by year’s end. DeFi is only just beginning and is still beyond the reach of the masses due to the technicalities of crypto transactions.
The unregulated financial ecosystem also gets a lot of bad press due to the rampant exploitations and rug pulls that occur. Just last week, one of the largest protocols in the industry, Yearn Finance, got hit with an $11 million flash loan attack.
Is TVL a Good Measure?
Regardless of the obvious security issues, DeFi has still experienced monumental growth over the past twelve months.
Industry experts, such as Uniswap founder Hayden Adams, are not convinced that TVL is a good measure for automated market makers. It is true that figures can be inflated if assets are double-counted for being tokenized or locked into one protocol to provide liquidity for another.
Adams argues that what really matters is how much can be bought without price movements occurring;
“Lower TVL + better trade execution is a direct measure of the capital efficiency of a trading protocol. Capital efficiency and volume are the two numbers we want to go up. And they will,”
TVL is utterly meaningless for AMM
What actually matters is how much you can buy without moving the price
The reason TVL feels meaningful is there is a direct mathematical relationship to buying power in most AMMs today
I’m sorry @loi_luu @DenizOmer now everyone is confused
— Hayden Adams 🦄 (@haydenzadams) February 7, 2021
Uniswap has enjoyed a massive surge in volume in recent months, hitting a record weekly high of $6.7 billion for the week ending February 6, according to its stats dashboard.
Ten ‘Billion Dollar Plus’ Protocols
DeFi Pulse also noted that there were now ten protocols with over a billion dollars in liquidity. Maker is still the king of the crop with $5.7 billion, giving it a dominating market share of 16.8%.
The second most popular DeFi protocol is Aave with $5.3 billion locked up, and Compound Finance takes third with a TVL of just under $4 billion.
Uniswap, which is gearing up to launch version three, is currently in fifth place with $3.5 billion locked up, though its own platform reports the figure closer to four billion.
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