Is DeFi迎来 a moment of value "revival"? Multiple data points show a rebound, and the business side is breaking the valuation dilemma

Author: Nancy, PANews

The "Black Monday" recession panic dominates global markets, and a grand "green wave" strikes again, violently deleveraging the crypto market. In this round of stress testing, the DeFi sector, as a cornerstone of liquidity, has demonstrated stronger resilience than before, as it has not experienced severe decoupling or bad debt risks.

Meanwhile, current DeFi data shows a positive trend, and the economic narrative focusing on dividends and buybacks is also well recognized. The market seems to be igniting a new round of DeFi value discovery. However, the market performance of DeFi tokens has been less than satisfactory, and the recent large-scale sell-offs by DeFi protocols such as Uniswap and MakerDAO have raised market concerns.

Multiple Data Points Confirm Recovery Trend, Adverse Market Conditions Highlight DeFi Resilience

Data indicates that the long-dormant DeFi sector is reviving. According to DeFiLlama data, the TVL of DeFi fell to about $36 billion in 2023 but has since surpassed $109 billion this year, recovering to mid-2022 levels. Additionally, Token Terminal recently pointed out that the active loan amount in DeFi has returned to its highest level since early 2022, approximately $13.3 billion.

Furthermore, the market share of DEX is rapidly increasing. The Block data shows that as of August 7, the monthly trading volume of DEX relative to centralized exchanges (CEX) reached 14.4%, setting a historical high. Notably, DEX trading volume on Solana surged recently, surpassing Ethereum for the first time in July with a monthly trading volume of $55.876 billion.

As value recovers, DeFi's risk resistance has also improved. It is well known that each extreme environment tests the DeFi sector, with large liquidations, significant decoupling, and substantial bad debts… In the past, the liquidity situation of DeFi during extreme market conditions was often not optimistic, leading to concerns and doubts about the long-term development of this sector.

In this round of market liquidity flashing red, although there have been large-scale liquidations in the DeFi sector, Parsec Finance data shows that Ethereum DeFi protocols set a yearly liquidation record on August 5, with liquidation amounts exceeding $350 million, but no panic sell-off events occurred.

"Although the market has experienced severe fluctuations, the DeFi sector remains robust," said DeFi researcher Ignas, who interpreted the current situation of the DeFi market under the pressure of the crash from multiple angles, including that the withdrawal queue for Lido's stETH has not significantly increased, major LST tokens have not shown obvious decoupling phenomena, and major stablecoins have not experienced significant decoupling. For example, the founder of Aave stated on the X platform that the protocol has withstood market pressures from 14 active markets across various L1 and L2, ensuring a value of $21 billion, and earned $6 million overnight through liquidations, "which proves the value of DeFi construction."

The resilience demonstrated by the current DeFi sector has resonated within the community, with many stating that the sector's pressure resistance is becoming stronger. For instance, crypto KOL Chen Mo noted that DeFi is currently the only confirmed demand that has truly crossed the cycle from 0 to 1, positioning it on par with centralized exchanges; @Cody_DeFi also mentioned that compared to before, DeFi has more orderly handled a batch of high leverage on-chain, especially since LST has basically not decoupled, indicating that Leveraged Staking remains very safe, and the ecosystem is becoming increasingly adept at handling such "incidents."

Crossing the Bubble to Open New Cycle Narratives, Business Data Shows Improvement

Despite the recovery in the DeFi market, it is undeniable that after high yields are no longer available, DeFi seems to have lost its narrative center, which has been vividly reflected in this bull market cycle. CoinGecko data shows that as of August 7, the market capitalization of the DeFi sector is approximately $67.54 billion, ranking seventeenth among various crypto sub-sectors, lower than the market capitalization of the fourth-ranked Solana single project. Meanwhile, The Block data indicates that as of August 8, DeFi's dominance has slipped to 3.16%, the lowest since January 2021.

According to PANews statistics on the market performance of the top 10 DeFi tokens by market capitalization, these tokens have an average decline of 6.4% this year, but when excluding the extreme values of MKR and JUP, the average decline reaches 19.5%. The unlocking and circulation of projects are important factors affecting investor sentiment, especially as some DeFi protocols' large-scale sell-offs have raised concerns among investors. For example, UniswapLabs-related addresses have sold approximately $8.65999 million worth of UNI over the past month, and MakerDAO team-related addresses have transferred out approximately $9.208 million worth of MKR over a continuous four-month period.

PANews statistics show that the overall unlocking progress of these ten DeFi tokens has exceeded half, with an average unlocking amount of 67.3%, among which MKR, LDO, RUNE, and AAVE are close to or in a fully circulating state, meaning these tokens do not have excessive selling pressure, thus exerting less pressure on their prices. At the same time, the MC (market capitalization)/FDV (fully diluted valuation) ratio is also one of the important indicators for assessing price potential, especially in the current environment where low circulation and high FDV are being resisted; the smaller the ratio, the higher the long-term holding risk. From the above statistics of these ten DeFi tokens, the average ratio exceeds 67.2%, and when excluding JUP, it reaches as high as 73.3%.

Moreover, in addition to the above fundamentals, DeFi is also one of the few sectors with real income support for its value narrative. In fact, the DeFi sector has relatively clear profit models, such as transaction fees, staking commissions, lending interest, and asset management fees, especially as leading projects possess extremely high moats. According to Token Terminal data, among the top 20 protocols by revenue over the past year, 11 are from the DeFi sector, mainly involving DEX, lending, derivatives, and stablecoins.

Furthermore, many mainstream DeFi protocols are currently adopting dividend buyback mechanisms as a popular strategy to further enhance their value recovery. For example, the established DeFi protocol MakerDAO deployed a smart burn engine last year to upgrade its buyback and burn mechanism, Aevo has initiated a six-month AEVO token buyback process, the GMX community recently voted on a proposal to change the income distribution model to buybacks and distribute GMX, and Aave's new proposal considers initiating fee conversions to return part of the net excess income.

In summary, as crypto investment becomes more rational, the bubble of false prosperity has been burst by liquidity shortages, and crypto applications with economic value narratives, PMF (product-market fit) capabilities, and resilience are likely to usher in a major upward wave.