Decentralized Finance 2024 Outlook: Industry Trends and Development Directions

In the past few years, DeFi has undergone significant development and transformation. From its initial experimental projects to now becoming an indispensable infrastructure in the cryptocurrency space. During this process, some projects have stood out, but competition has also become increasingly fierce. Various projects continually innovate to vie for more market share. So, what trends might the DeFi sector present in 2024? Here are some key trend predictions for the future development of DeFi.

Trend of Protocol Platformization

With the increasing maturity of the DeFi sector, major protocols are no longer satisfied with a single function and are transitioning to platforms that provide comprehensive services. Last year, we saw several well-known DeFi protocols expand their business scope. For example, after a sub-DAO of a certain DAO was launched on Ethereum, its total locked value (TVL) rapidly rose to 1.65 billion USD, becoming one of the major lending protocols.

Other protocols are also expanding their business lines. Some trading platforms and lending protocols have developed their own stablecoins, and a certain DEX has launched a wallet application and acquired an NFT platform. There are even comprehensive protocols emerging on new public chains that integrate multiple functions such as DEX, stablecoins, and liquidity staking.

This platformization trend reflects the maturity of the Decentralized Finance industry and intensified competition, and it is expected that this trend will continue and become increasingly evident in the future.

The Strong Position of Leading DEXs and Lending Protocols

The leading DeFi protocols that emerged before the last bull market have established strong network effects and brand influence after enduring continuous market tests. They consolidate their market position through constant innovation, making it difficult to be replaced in the short term.

A well-known DEX has announced a new version development plan that will allow for the addition of custom features through "hooks"; its newly proposed trading scheme is similar to another trading platform, using an off-chain order signing and on-chain settlement model. A new version of a lending platform has improved capital efficiency and expanded its business across multiple public chains.

Data shows that the leading DEX on major EVM-compatible chains still occupies about 55% of the market share.

Liquidity mining declines, funds flow to more efficient projects

In mature ecosystems, liquidity mining has gradually become a thing of the past. Projects rely more on "real yields" to attract funds, and investors tend to allocate their capital to more efficient avenues.

Recently, the prosperity of a certain public chain ecosystem has raised concerns about other public chains. Against the backdrop of frequent trading of MEME tokens, the DEX on this public chain has demonstrated strong capital efficiency. Currently, liquidity providers mainly rely on real trading fee income, and these projects may attract more funds in the short term.

In contrast, the yield of other on-chain similar trading pairs is much lower. In the case of significant differences in profitability, professional liquidity providers may turn to projects with stronger profitability and higher capital efficiency.

LST Leads New Public Chain TVL Growth

Although many blockchains that adopt the proof-of-stake mechanism have had liquid staking projects for a long time, the liquid staking token (LST) only began to receive widespread attention before the Ethereum Shanghai upgrade. Currently, a certain liquid staking platform has become the project with the highest TVL.

This trend has also appeared on other public chains. In the ecosystem of a certain public chain, two liquid staking projects occupy the top two positions on the TVL leaderboard, leading to recent TVL growth for that chain. Other public chains looking to enhance their TVL seem to have discovered the promoting effect of LST on ecosystem development and are launching related incentive measures.

Perp DEX may迎来突破

The decentralized perpetual contract exchange ( Perp DEX ) has always attracted attention and has given rise to several well-known projects. Although these projects have their own advantages and disadvantages, there is still room for improvement.

Some emerging Perp DEXs have exhibited attractive features. For example, a certain platform's liquidity pool offers astonishing returns, although the risks are higher. Additionally, some projects have proposed more capital-efficient solutions that could bring breakthroughs in this field.

Controversies and Exploration of Real World Assets

Real-world assets ( RWA ) projects are somewhat controversial. They may rely on centralized entities and face regulatory risks, which is not entirely consistent with the decentralized philosophy of Decentralized Finance.

Currently, U.S. Treasury bonds seem to be the only RWA direction that can be widely applied. Other asset types, such as real estate and artworks, can be tokenized, but due to their non-standardized nature, they similarly lack liquidity on the chain.

With changes in the expectations of interest rate hikes in the United States, short-term U.S. Treasury yields may decline in 2024, which will affect the yields of related RWA products. At the same time, if the cryptocurrency market enters a bull market and demand for stablecoins increases, the attractiveness of these products may decrease.

Nevertheless, entrepreneurs are still actively exploring this field. Traditional financial institutions may be introduced as partners in this process, and at the very least, it will become a captivating narrative.