Steno Research predicts that the total value locked of DeFi protocols will grow to record highs in 2025

At this point, the index is well below the all-time high reached in 2021 amid a bull market

23.08.2024 - 15:02

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What’s new? Steno Research analysts have noted that the total value locked (TVL) across all decentralized financial protocols (DeFi) is still below the 2021 record, but it could rise to new peaks as early as the first half of 2025. “DeFi’s imminent resurgence is linked to interest rates, particularly in the U.S., because the decentralized finance market is predominantly US dollar-centric,” the report says.

Material by CoinDesk

What else is known? Steno Research said the first “DeFi summer” occurred in 2020 right after the Federal Reserve cut interest rates in response to the COVID-19 outbreak.

“Interest rates are the most critical factor influencing the appeal of DeFi, as they determine whether investors are more inclined to seek out higher-risk opportunities in decentralized financial markets,” analyst Mads Eberhardt wrote.

In addition to interest rates, the growth of the DeFi sector is influenced by the supply volume of stablecoins, as such assets are a staple of decentralized financial protocols. Thus, since January, the supply of stablecoins has increased by $40 billion.

According to Eberhardt, as interest rates fall, the opportunity cost of owning stablecoins decreases, making them more attractive.

Another factor in the growth of DeFi protocols is the continued growth of tokenized real-world assets (RWAs) such as bonds and commodities, which has reached 50% since the beginning of the year, the analysts write.

AFME urges European issuers to use blockchain to tokenize bonds

The association’s members also called on policymakers to create a favorable regulatory framework to facilitate the adoption of the technology

DeFi services are also becoming more accessible amid falling fees on the Ethereum network, the most popular network for running such protocols. This week, according to Kaiko, fees on Ethereum fell to a five-year low.

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