Outlook on Development Trends in the DeFi Sector for 2024

In recent years, Decentralized Finance ( DeFi ) has experienced rapid development and evolution. From initial experimental projects to becoming an indispensable cornerstone in the cryptocurrency space today. Several projects have emerged during this process, but industry competition has also intensified. Various protocols continue to innovate in hopes of capturing a larger market share. Looking ahead to 2024, DeFi may present the following major trends:

The trend of platformization of protocols is obvious

As the DeFi field matures, major protocols are becoming dissatisfied with single functionalities and are instead providing comprehensive service platforms. Over the past year, several well-known DeFi protocols have made new moves: a sub-DAO of a lending protocol went live and quickly became one of the main lending protocols; a certain DEX and a certain lending platform each developed their own stablecoins; a certain DEX launched a wallet application and acquired an NFT platform. A certain protocol on a new public chain has integrated the development of multiple functions such as stablecoins, DEX, and Launchpad. This trend towards platformization is expected to continue and intensify in the future.

The dominant position of top projects is difficult to shake.

Leading DeFi projects such as a certain DEX and a certain lending protocol were all born before the last bull market. They have continuously strengthened their positions during the market evolution, showcasing strong network effects and brand influence, and have been continuously updated and iterated. In the short term, these projects will still occupy a major market share and are difficult to replace. Data shows that a certain leading DEX still holds about 55% of the market share in major EVM chains.

The decline of liquidity mining, funds chasing efficient projects

In mature public chain ecosystems like Ethereum and Solana, liquidity mining has become a thing of the past. Projects rely more on "real yields" to attract funds, and capital is more inclined to flow to places with higher efficiency. Taking a certain public chain as an example, its DEX demonstrates strong capital efficiency, with revenue generated solely from transaction fees far exceeding that of other chains. In a situation where earning capabilities are disparate, professional liquidity providers are more likely to turn to emerging projects with strong profitability and high capital efficiency.

Liquidity Staking Tokens Lead New Blockchain TVL Growth

The liquid staking token (LST) has gained significant attention after the Ethereum Shanghai upgrade, with a certain LST project becoming the DeFi project with the highest TVL. A similar trend has also appeared on Solana, where two LST projects occupy the top two spots in TVL on that chain. Other emerging public chains have also recognized the role of LST in promoting their ecosystems and are starting to focus on this area. LST is expected to become an important driving force for new public chains to increase their TVL.

The potential of decentralized perpetual contract exchanges is immense

Although there are already some well-known decentralized perpetual contract exchanges ( Perp DEX ) projects, existing solutions still have many issues. For example, in a one-sided market, one project faces a long-short imbalance; another project introduces a slippage mechanism, but brings uncertainty to users. Recently, some emerging Perp DEX projects have shown attractive features, such as extremely high liquidity provision return rates and more efficient capital utilization solutions. This sector still has significant growth potential.

Controversy Remains Over Real-World Assets

Real-world assets ( RWA ) projects are subject to certain controversies. They involve off-chain components, may rely on a single entity, face regulatory risks, and do not fully align with the decentralized characteristics of Decentralized Finance. Currently, U.S. Treasury bonds seem to be the only direction for RWA that can be applied on a large scale. However, with the expectation of interest rate hikes in the U.S. and the possibility of the crypto market entering a bull market, the attractiveness of RWA products may decline. Nevertheless, entrepreneurs are still actively exploring this sector, and traditional financial institutions may be introduced as partners in the future.