Lower Ethereum Fees And Key Factor Could Revive DeFi Summer, Steno Research Says

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As a seasoned analyst with over two decades of experience in the financial markets, I have seen bull and bear cycles come and go. The DeFi summer of 2020 was a unique and exciting period, one that I believe we could witness again by 2025, according to Steno Research’s report.

As an analyst, I’m sharing some intriguing insights from a Steno Research report. It predicts that we might witness a reemergence of the DeFi summer on Ethereum and the broader crypto market as soon as 2025. This is four years after the memorable DeFi summer of 2020. The report suggests that the total value locked (TVL) in these protocols could potentially reach an all-time high by the early part of next year.

However, the return of DeFi summer rests on two key factors.

Lower Ethereum Fees Crucial To Attract Investors

Historically, Ethereum (ETH) has been at the forefront of the decentralized finance (DeFi) movement, with more value locked into its platforms than any other smart contract blockchain. As per DeFiLlama’s latest data, the total value locked in Ethereum-based protocols is around $50.11 billion at this moment.

As a crypto investor, I’m seeing that Ethereum is leading the pack with Tron (TRX) and Solana (SOL) close behind. The Total Value Locked (TVL) in Ethereum stands at a staggering $8.27 billion, while Solana follows closely with $4.99 billion. The massive gap between the TVL locked in Ethereum compared to its competitors offers a clear perspective on the immense importance of the Ethereum blockchain in the rapidly growing crypto space.

It’s not surprising that a significant surge in the DeFi (Decentralized Finance) sector can only occur if Ethereum protocols are open and usable for both newcomers and experienced players within the industry. According to Steno Research, reducing Ethereum transaction fees is crucial to make the ecosystem more welcoming and user-friendly.

Interest Rate Cuts Could Pave The Way For DeFi Summer

Steno Research’s report suggests that shifts in U.S. interest rates will significantly influence whether Decentralized Finance (DeFi) makes a resurgence. Given that this market predominantly deals in USD, a succession of rate reductions might stimulate investors to take on more risk, potentially leading them to invest in aggressive assets such as digital currencies.

Mads Eberhardt, senior cryptocurrency analyst at Steno Research, noted:

The importance of interest rates in Decentralized Finance (DeFi) lies in their role as decisive factors; they help shape the attractiveness of these markets for investors by influencing their preference towards potentially riskier investments in the decentralized financial sector.

The report indicates that the surge in DeFi during the summer of 2020 was additionally boosted by the Federal Reserve lowering interest rates due to the COVID-19 pandemic. Consequently, this sector reached an unprecedented peak in total value locked (TVL) within its protocols in 2021, surpassing $175 billion.

Lower Ethereum Fees And Key Factor Could Revive DeFi Summer, Steno Research Says

A notable instance of investor’s risky behavior in 2020 was the widespread adoption of passive investment methods, such as yield farming.

For those new to this concept, yield farming lets investors “cultivate” returns on their digital tokens by supplying liquidity to the pools of decentralized trading platforms (DEX), lending services, or various other apps.

Nevertheless, Vitalik Buterin has voiced apprehensions regarding the long-term viability of strategies that offer high returns but carry significant risks in the short term. Yet, 2024 presents a distinct landscape.

Even without a worldwide epidemic causing economic disruption, interest rates have stayed elevated as a strategy to combat persistent inflation, dampen consumer spending, and manipulate currency values. But, with signs of weakness in the American job market emerging, the Federal Reserve is anticipated to implement a sequence of interest rate reductions starting from September.

Another factor that could trigger the return of DeFi summer is the expanding stablecoin supply. Recent on-chain data indicates that stablecoin growth has flipped into positive territory, making a bullish case for the crypto industry.

Moreover, there’s been a significant increase in the desire for tangible assets within the wider community, suggesting a robust interest in blockchain-based financial services. These tangible assets can take the form of tokenized equities, debt instruments (bonds), and commodities.

Instead of getting overly excited about a potential second wave of DeFi growth, investors need to remain cautious about the potential hazards concerning the security of their digital possessions.

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2024-08-24 09:12