The catalyst behind a potentially booming DeFi summer

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The contraction phase of the crypto market cycle appears to be coming to an end. Led by Bitcoin’s recovery, renewed optimism in the digital asset space is driving a resurgence in various subsectors of the cryptocurrency industry.

DeFi, GameFi, and other categories continue to innovate, and these unique assets could be particularly noteworthy when growth fully resumes. Across DeFi in particular, we’re seeing early signs of a possible repeat of the DeFi summer of 2020, arriving slightly later than expected. In this article, we explore various signs that the DeFi space is about to heat up again.

What is DeFi Summer?

DeFi Summer is a term lovingly coined for mid-2020, when the total value locked in DeFi applications began to skyrocket. Cryptocurrency holders flocked to his DeFi for the purposes of lending, borrowing and liquidity provisioning, made possible through permissionless decentralized technology.

The trend started in June, resulting in very hot growth in DeFi asset valuations and TVL for several months. The summer of 2023 isn’t as hot as it used to be so far, but we’re starting to see a boom in decentralized finance.

A technical example for achieving new growth

The tech landscape is ripe for a more significant recovery across DeFi, as can be seen in TradingView’s crypto DeFi market cap chart. The index aggregates top DeFi assets such as Compound, Aave, and others.

Could the trend be changing? | Source: Total DeFi on TradingView.com

The DeFi market is exiting the oversold state for the first time since 2019, according to the monthly Stochastics. In the months that followed, the first DeFi summer began to spread its wings and take off. Will we witness similar movements again?

Moreover, the DeFi market capitalization monthly candlestick has remained above the midrange, just as it did the last time Stoch broke out of its oversold level. A short and tight trading range is characteristic of re-accumulation, but overbought levels may be needed to return to the full strength and growth seen last DeFi summer.

Meanwhile, individual assets within the DeFi basket have soared. Aave, mentioned earlier, Over 70% increase The compound has climbed over 200% in the last few weeks. Subsections of the cryptocurrency market can become even larger due to their breadth as more private assets participate.

Fundamentals keep DeFi innovation alive

The initial strength of individual assets is tempered by an unusual surge in volume as TVL begins to recover. A surge in trading volumes in early 2023 could represent positions being taken by more prominent market participants. But it’s not entirely clear what caused the increase in volume, only that it was the highest ever recorded, according to data aggregators. Defilama.

Volume spiked to the highest ever, but why? | Source: DeFiLama

To gain further perspective, we gathered insights from inside the DeFi industry itself, Metis Network, Elena Sinelnikova.

“Layer 2 solutions have made progress in addressing scalability issues, reducing transaction costs, and increasing efficiency for DeFi applications. has revolutionized , enabling fractional ownership and trading on decentralized platforms, bringing unprecedented liquidity to traditionally illiquid assets,” said Elena Sinelnikova, co-founder of Metis. rice field.

“The surge in marketing and business development budgets for new platforms has led to an increase in DeFi APY, especially in liquidity mining where increased rewards are offered to those who bring liquidity. The constant innovation of DeFi protocols, including aspects such as crypto exchanges, derivatives, insurance and synthetic assets, has greatly expanded DeFi’s capabilities, thereby attracting new liquidity,” Sinelnikova continued. .

Recent developments also suggest that there is growing interest in certain DeFi projects. For example, Aave, the second largest application in DeFi, raised the supply limit It targets popular pools on the Metis network and lays the groundwork for increased TVL, liquidity and ecosystem participation.

Conclusion

The future trajectory of the DeFi market remains uncertain, but a combination of technology metrics, underlying strength, and ongoing innovation suggests that the DeFi summer may be on the horizon.

Investors and enthusiasts should closely monitor the evolving situation and seize opportunities in this dynamic and rapidly expanding sector.



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