SoDeFi : DeFi Insights Newsletter #3

Welcome to the SoDeFi Insights Newsletter!

SoDeFi Insights provides a bi-weekly perspective on the DeFi landscape, examined through a data lens. This edition marks the debut of our 2024 newsletter, where we will delve into the launch of the Bitcoin ETF and its impact on the DeFi landscape.

The newsletter is structured into three parts:

1. Weekly Summary

2. Deep Dive into TVL and Yield

3. SoDeFi Scoring League Tables

Weekly Market Summary

The year 2024 has commenced with a bang. As of the current writing, Bitcoin is trading around $43,000, holding steady over the past two weeks but dominating discussions throughout the month. The buzz emanates from the SEC’s approval of Bitcoin ETFs. However, post-launch, it appeared that all potential Bitcoin upside had already been factored in, leading to a retreat in BTC.

The approval carries significant weight for the cryptocurrency space, providing another endorsement for digital currencies to achieve mainstream acceptance. The ETF’s availability to a broader audience, encompassing both institutional and retail investors, enhances the potential for inclusion in diverse portfolios. The ultimate aspiration is for the token to become a staple in investor portfolios, akin to other alternative assets.

However, this development is a double-edged sword for the cryptocurrency space. While demand for the ETF is likely to bolster the overall market cap, benefiting ETH and other altcoins, it introduces an additional layer of intermediaries to an ecosystem originally designed to eliminate gatekeepers. Moreover, there’s debate about whether the ETF will actively contribute to onboarding new users into the crypto DeFi space. If investors purchase the ETF and incorporate it into their 401K, the likelihood of moving these funds on-chain seems minimal.

ETF Impact on TVL Across the DeFi Space

Influenced by the broader cryptocurrency market, Total Value Locked (TVL) witnessed a surge across the majority of blockchains, reaching a total of $45 billion. In the last 7 days, the most rapidly growing chain within the top 10 was Manta, the smallest chain among the top ten, marking a 15% increase over the week. Beyond Manta, top gainers included Ethereum roll-ups, Arbitrum (8%), Polygon (6%), and Optimism (5%).

Taking a closer look, the data implies that the uptick in TVL is primarily fueled by higher valuations rather than substantial fund inflows. While it’s always challenging to make definitive conclusions, the evidence leans towards this interpretation as the increase in chain TVL closely mirrors the upswing in token prices during the same period. Instances where TVL surpasses the overall increase in token prices could signify increased flows into the DeFi space. A second piece of evidence supporting this perspective is the sluggish activity in new projects launched since the beginning of the year. As illustrated below, the pace of new project launches has been relatively slow, considering we are only two weeks into the year.

Yield on the Rise

In the DeFi space, yield has shown a gradual increase over the past 4 weeks. Non-stablecoin pool yields have reached 15%, a notable uptick from the 10% observed since December 2023. Although substantial, this increase doesn’t parallel the magnitude witnessed in the cryptocurrency price surge. Stablecoin yields, similarly, experienced a slight uptick around mid-December but have since plateaued at around the 9% mark.

Both benchmark rates serve as robust indicators that DeFi activity is gaining momentum, propelled by the positive enthusiasm surrounding the launch of the Bitcoin ETF. While it’s still too early to draw definitive conclusions, these developments may signify an early positive sign for the strength of the DeFi market as we progress through 2024.

Zooming in on the 10 largest chains, Arbitrum emerges as the frontrunner in terms of average yield across both non-stablecoin pools and stablecoin pools. This roll-up chain boasts the largest spread within the top 10, signifying that it not only hosts the highest APYs but also accommodates the most projects with such attractive rates. Occupying the second and third positions are the Osmosis and Optimism chains, contributing to the robust performance within this elite group.

While the Solana ecosystem exhibits a lower average for non-stablecoin pools, the spread suggests that the escalating token price is enabling a select few projects to offer higher yields. This nuanced perspective underscores the diverse dynamics at play within the top chains, where different factors contribute to their overall performance.

As we look ahead to 2024, there is an optimistic anticipation that the new year will inject fresh activity into the DeFi space, whether through the introduction of new chains or the launch of innovative projects. One notable contender making strides in 2024 is Sui. At the time of writing, the chain has experienced a remarkable surge, elevating its Total Value Locked (TVL) from virtually zero to over $300 million.

Sui has not only secured a position within the top 10 stablecoin TVL rankings, claiming the 8th spot overall, but it also boasts the highest APY across the largest chains. This impressive debut positions Sui as a noteworthy player to watch, potentially influencing the DeFi landscape and contributing to the sector’s growth in the coming year.

DeFi Scoring Tables

Delving into the analysis of SoDeFi Scoring tables, let’s start with non-stablecoin pools. In this category, Arbitrum and Ethereum assert dominance in the top 20 ranking, with 6 pools represented, and Arbitrum securing the lead within the top 10. Mirroring the broader sentiment, these pools boast enticing Annual Percentage Yields (APYs), with only 1 pool falling below the 100% mark. Notably, these impressive APYs are achieved with Total Value Locked (TVL) well into the millions.

The overall rankings are predominantly influenced by Ethereum roll-ups, with Sui, Solana, and Avalanche standing out as the lone Layer 1 blockchains in the standings. An emerging trend for 2024 appears to be the increasing strength of roll-up TVL as the Ethereum ecosystem scales up, underscoring the evolving dynamics within the DeFi landscape.

Turning our attention to stablecoins, we observe robust Annual Percentage Yields (APYs). Except for two values exceeding 100%, the average APY appears to hover around the 30–40% range, presenting a multiple roughly 5 times higher than the average for all pools. Even in the early stages of a potential crypto market bull run, the stablecoin APY looks notably attractive and promising.

In line with the non-stablecoin rankings, Arbitrum dominates the standings with 10 pools securing positions within the top 20. Ethereum, in contrast, is represented by only 4 pools in the top 20. The recent entrant, SUI, makes its mark in the standings with a USDT pool ranking in the 19th place. This diversified landscape showcases the varying strengths and contributions of different platforms within the stablecoin segment.

Thank you for tuning into the SoDeFi Insights Newsletter. Stay tuned for my next post, where I’ll be sharing an updated overview of the SoDeFi scoring methodology. As always, happy yield hunting!