DeFi Tokens Experience Surge in Trading Volumes
DeFi blue chip tokens have seen a significant increase in trading volumes recently. The approval of ETFs last week, which established ETH tokens as a commodity, has provided a boost to the top Ethereum protocols in the DeFi space. The growth of DeFi has been observed in both niche projects and top protocols throughout 2024.
The blue chip tokens in the DeFi sector include Aave (AAVE), Maker (MKR), Uniswap (UNI), Curve Finance (CRV), and Compound (COMP). These projects represent the most valuable and widely used business models in DeFi.
Among these tokens, AAVE has experienced the highest volume increase, expanding by 394% in the past few days, with trading reaching $188 million. UNI has also seen a significant increase in trading volumes, rising by about 230% this week and peaking at over $690 million in 24 hours.
It’s important to note that the core batch of DeFi blue chip tokens does not include the recent addition of re-staking protocols on Eigen Layer. However, these blue chips still rank among the top apps listed by DappRadar, although daily wallet-based activity may vary.
Factors Driving the DeFi Blue Chip Narrative
The rise of DeFi blue chips is part of a larger trend within the Ethereum ecosystem. Other trending narratives in this space include DEX, Liquidity Staking Derivatives, DEX, and Layer 2 solutions.
The DeFi narrative currently competes with various waves of meme tokens, which often lack utility or promising products. However, DeFi narratives tend to go through cycles and resurface as popular investment options.
Market returns for DeFi blue chips can vary, and being at the peak of a cycle could mean that the trend may reverse soon. The DeFi blue chip narrative is volatile and faces competition from other investment options. The main driver of this trend is the increase in ETH price, which makes protocols more secure and liquid.
Moreover, the expectation of a renewed altcoin bull market is also boosting older protocols with proven value. Meme token fatigue is growing, even as the industry anticipates the emergence of Meme 2.0.
Are DeFi Users Returning?
The DeFi trend is evident in the growing transaction volumes, value locked, and other proxy metrics. However, there has been a decline in the number of users since the April market slump. This decline led to a decrease in proper engagement with DeFi for the first time since October 2023. In May, the number of DeFi users reached 3.8 million, down from the peak of 6.3 million in March, during the 2024 bull market.
The rise of blue chip DeFi tokens in May could potentially increase the number of users in the space.
As a proxy metric, DAI serves as an indicator for Maker-based activity. The native stablecoin of the protocol has 2.16K daily users, ranking 24th among the most widely transferred tokens. AAVE reports approximately 689 daily active users based on TradingView data, while DappRadar indicates 4.3K daily active wallets for AAVE V3.
However, it’s important to note that the exact number of protocol end users does not always impact the narratives and centralized trading. Therefore, the past week has seen new inflows into blue chip tokens to take advantage of the short-term price expansion.
Crypto Lending Makes a Comeback in May
After a month focused on DEX trading, another aspect of DeFi, crypto lending, has gained momentum. This type of protocol has historically struggled during bear markets, primarily due to collateral losses during turbulent market conditions.
Both Aave and Curve Finance have seen borrowers and lenders return to the market to capitalize on liquidity rewards.
Curve Finance experienced a significant trend reversal in May, with both supply and demand for loans increasing by over 200%. The protocol has rebuilt its collateral in a new expansion phase, with current loans protected by $7.3 million in wETH collaterals.
Another positive development in May has been the absence of liquidations, particularly due to sudden drops in ETH prices. One reason for the return to Curve Finance is the introduction of a new algorithm for “soft liquidations,” which accommodates collateral requirements instead of completely wiping out positions.
– Reporting by Hristina Vasileva
