DeFi’s Resurgence: How Stablecoins and Institutional Legitimacy Are Fueling Growth
DeFi, or decentralized finance, is experiencing a significant resurgence, with its Total Value Locked (TVL) approaching levels last seen in 2022. This growth can be attributed to several factors, including the emergence of stablecoins, the proven operational resilience of DeFi protocols, and increasing institutional legitimacy. To delve deeper into this phenomenon, crypto.news spoke with Filip Dragoslavic, Co-CEO of Solflare, a non-custodial wallet for the Solana ecosystem.
According to Dragoslavic, the growth of stablecoins is drawing both retail and institutional attention to DeFi. Stablecoins are growing rapidly, and the wave of innovation and adoption surrounding them is directly leading to renewed DeFi activity. Furthermore, DeFi protocols have proven themselves in volatile conditions, with examples like Hyperliquid operating smoothly under pressure, whereas centralized exchanges like Binance struggled to fulfill orders during major sell-offs.
DeFi’s Increasing Competitiveness with TradFi and CEXs
The current DeFi cycle differs significantly from the last one in 2021-2022, primarily due to the increased share of DEX trading volume, which has risen from 1% to 25% since 2022. This shift indicates a growing preference for decentralized exchanges over centralized ones. Additionally, the entry of more institutional players into DeFi and a more positive attitude from governments worldwide, particularly in the US, are contributing to DeFi’s increasing legitimacy.
Dragoslavic highlights that the US regulators’ consideration of innovation exemptions for DeFi is a significant development, allowing the space to experiment and potentially lead the next generation of finance. The absence of strong lobbying from DeFi is compensated by forward-thinking individuals in governments who recognize its potential and are giving it room to grow.
Technical Resilience and the Future of DeFi
Solana, in particular, has more than doubled its DeFi TVL, with even stronger volume performance, making it an attractive platform for high-volume, high-speed applications. However, Dragoslavic notes that TVL is not a perfect metric, and efficient platforms don’t always require massive TVL. The focus on volume and trust is crucial, with centralized exchanges still offering advantages like speed and reliability, but DeFi providing control and decentralization.
The user experience in DeFi is similar to that of centralized exchanges in terms of interface, but differs significantly in execution. DeFi offers self-governance and ultimate control, but also ultimate responsibility, which can be a learning curve for users. Despite the existence of scams and hacks, DeFi is becoming more secure, with the ecosystem improving rapidly and security professionals learning from every incident.
Overlooked Trends in DeFi
Dragoslavic believes that confidential or data protection-compliant transactions will be an important issue in the future. Blockchains are inherently transparent, making trading at scale difficult without revealing positions. However, many companies are working on this problem, and privacy-focused solutions will be introduced on Solana soon. Another significant development is the emergence of a second pillar in the crypto space: the stablecoin pillar, which is having a huge impact on DeFi adoption.
The growth of stablecoins and improvements in DeFi platforms are expected to reinforce each other, with the number of DeFi participants potentially tripling in the next two years. This growth will come from both stablecoins making DeFi more accessible and continued improvements to DeFi platforms. For more insights into the future of DeFi and the role of stablecoins, read the full interview with Filip Dragoslavic on crypto.news.
Spot trading volume from DEX to CEX | Source: The Block
DeFi TVL dominance through blockchain network | Source: DeFiLlama
