TL;DR
- The DeFi market has seen a resurgence in on-chain lending protocols, reaching activity levels not seen since 2021, driven by increased stablecoin liquidity and a more mature market structure.
- Aave has expanded its lending pool model, resulting in over $22 billion in value locked, contributing significantly to the resurgence.
- The current expansion in on-chain loans, exceeding $22.85 billion, reflects a more conservative growth approach, driven by the value of collaterals and the use of T-Bills, indicating a robust and maturing DeFi market.
The world of DeFi has seen a resurgence in on-chain lending protocols, reaching activity levels not seen since the peak euphoria of 2021. This revival is driven by a combination of increased stablecoin liquidity and a more mature market structure, positioning DeFi lending as one of the leading applications in the 2024 bull cycle.
🚨 ICYMI: Onchain leverage via lending protocols is at all-time highs. Prior all-time high was in Dec '21. pic.twitter.com/gqbTEkLwaJ
— Token Terminal (@tokenterminal) December 18, 2024
Lending Gets a Boost from Stablecoins
A significant factor contributing to the resurgence of on-chain lending is the larger pool of stablecoins available in the market. During the 2024 cycle, DeFi and centralized trading have exposure to nearly $200 billion in various stablecoins.
This influx of stablecoins has not only boosted lending activities but also limited the potential contagion in case of a market drawdown. The DeFi space now includes new algorithmic or asset-backed coins and tokens, such as USDe, USDS, and the remaining supply of DAI, creating niche sources of liquidity.
Aave Leads the Lending Movement
Aave, a leading decentralized lending protocol, has been at the forefront of this resurgence. The protocol has aggressively expanded its lending pool model to other DeFi hubs, resulting in over $22 billion in value locked, including reported loans and collaterals.
Aave’s success is attributed to its robust infrastructure and user base, built during the bear market years. The protocol’s native token, AAVE, has also seen significant activity, with whale buying and on-chain loans being rolled back into DeFi tokens, further boosting its price.
Conservative Growth and Mature Market Dynamics
The current expansion in on-chain loans, which have exceeded $22.85 billion, reflects a more conservative growth approach compared to the 2021 peak. This time, the growth is driven by the value of collaterals and the use of T-Bills as collateral, reducing the risk tied to crypto prices.
The on-chain leverage metric reveals a more mature market, with leading protocols spreading to multiple chains. Despite the overall DeFi value locked being lower than in 2021, on-chain loans are just as active as during the previous bull cycle.
The resurgence of on-chain lending protocols to 2021 peak levels signifies a robust and maturing DeFi market. With increased stablecoin liquidity and leading protocols like Aave driving the movement, the future of DeFi lending looks promising.
