Total value locked across DeFi protocols has surged to levels last seen before the collapse of FTX

The total value locked across decentralized finance (DeFi) protocols has reached a new yearly high of $52 billion, a level not seen since the days before FTX collapsed in Nov. 2022.

The resurgence is noteworthy, given the turbulent history that has shadowed the sector following the downfall of FTX and other firms like Terra, Three Arrows Capital and Celsius, with the events surrounding these players leading to widespread uncertainty around both centralized and decentralized finance protocols.

Both sectors have shown signs of recovery in recent months. When it comes to DeFi in particular, since the beginning of 2023, TVL has jumped from around $38 billion to its yearly high of $52 billion, a 36% hike in dollar terms.

The TVL metric, however, is not immune from the volatility of asset prices, which can heavily influence its value. The latest uptrend could be partly attributed to the increasing market values of major cryptocurrencies like bitcoin and ether, as well as steadily-rising inflows from investors.

DeFi improvements

In addition to market recovery, specific improvements and upgrades within certain DeFi protocols have also contributed to the recent TVL jump. 

In 2023, there was a significant rise in real world assets (RWAs) niche within DeFi, especially at MakerDAO, which integrated close to $2.5 billion in RWA collateral, primarily in U.S. treasury bills, to support its Dai stablecoin. In this manner, it also reduced its dependence on centralized stablecoins such as USDC. MakerDAO's value locked has surged to over $8 billion, along with an increase in annualized revenue.

Maker also introduced a lending protocol called Spark, which saw significant inflows in the latter half of the year. The platform allows users to deposit their DAI stablecoins using the DAI Savings Rate (DSR) to exchange them for sDAI, enabling them to earn interest while retaining liquidity.

Similarly, liquid staking protocols like Lido Finance gained traction, allowing users to earn rewards without locking up their ether with validators. Lido remains the largest DeFi protocol by TVL, with over $21 billion in deposits. Additionally, Uniswap launched its v3 protocol in mid-2023, offering enhanced capital efficiency for on-chain traders.