DeFi resurgence driven by Fed cuts, China, key protocols
Apollo Crypto, an investment management firm specializing in digital assets, released a report highlighting the potential for a second wave of growth in decentralized finance (DeFi).
Following the peak market slowdown of the “DeFi Summer” of 2020, the report sees protocols such as Maker, Uniswap and Aave emerge as industry staples.
As of today, DeFi's total TVL sits at around $105 billion, with many calling for DeFi's resurgence and a return to its strong fundamentals.
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Monetary contraction and China's credit expansion.
Apollo Crypto's report cites macroeconomic factors, including the US Federal Reserve's recent interest rate cuts and China's credit expansion, as key drivers behind the growth of DeFi.
The report noted that the Fed's rate cuts have created a more attractive option for risk-averse assets, including cryptocurrencies such as Bitcoin (BTC) and Ether (ETH).
Also, the decision from the People's Bank of China (PBOC) to lower short-term interest rates and establish supportive lending measures underlines progress for DFIs.
“Historically, Bitcoin's performance has been positively correlated with the PBOC's total asset growth…and this is another potential bullish indicator as such.”
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Infrastructure and UX improvements
The report also mentions the DeFi infrastructure, “the focus on infrastructure construction in the last few years” citing the “abundance of cheap blockchain space.”
This allowed decentralized applications (DApps) to access blockchain at “higher performance speeds,” and reduced transaction costs on layer-2 scaling solutions.
Apollo Crypto points to Coinbase's cbBTC, an alternative version of BTC, a game-changer that could attract capital to the DeFi industry, offering an alternative to traditional exchange-traded funds (ETFs):
“When a user sends Bitcoin from their Coinbase account to an Ethereum or Base network address, BTC is now automatically converted to cbBTC at a 1:1 ratio, allowing users to convert from BTC to alternative crypto assets more easily than ever before.”
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Key protocol triggers
According to the report, Ave remains the leading decentralized lending platform, while Uniswap holds the position as the largest decentralized exchange.
Although Maker has been recognized as a catalyst in the DeFi renaissance, its recent move to the Sky ecosystem has drawn mixed reactions.
Skye's new stablecoin, USDS, appeared in response to what Cinemahain Ventures partner Adam Cochran called necessary for T-Bill support, with the so-called “freeze function.”
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