The decentralized finance (DeFi) market has undoubtedly been one of the most intriguing and unpredictable sectors within the crypto industry. While Bitcoin (BTC) continues to dominate the headlines, the DeFi sector has experienced significant growth and volatility in recent times. In 2020, the total value locked (TVL) in DeFi protocols skyrocketed from $1 billion to over $100 billion, creating immense excitement. However, this market has also been prone to substantial corrections, as seen in 2021 when the TVL plummeted from $100 billion to $40 billion. Despite the potential risks, it is crucial for traders to identify when the DeFi market is showing sustained bullish momentum. This article explores how three key metrics – TVL, platform fee revenue, and the number of non-zero wallets holding tokens – can be used to evaluate the health of the DeFi sector.
One of the most widely used metrics to assess the overall state of the DeFi ecosystem is the TVL, representing the total value of cryptocurrency assets locked in DeFi protocols. The rise in TVL suggests an increasing demand for and utilization of DeFi services, signaling a bull market. While the current TVL falls slightly below the peak of $52.9 billion recorded on April 15, 2023, it has been gradually increasing since the beginning of this year. Since January 1, the TVL across the crypto market has surged by $7 billion, reaching an impressive $45 billion. This growth demonstrates the resilience and potential of the DeFi sector.
Another crucial metric to consider is the platform fee revenue, which measures the amount of fees collected by blockchains for completing transactions. Layer-1 blockchains play a fundamental role in the DeFi ecosystem, allowing the development of decentralized applications (DApps) where users can interact without a centralized intermediary. An increase in layer-1 fees indicates a growing interest in DeFi and the active utilization of DApps to engage with blockchains. Over the past 30 days, the top 16 layer-1 blockchains by market capitalization have all witnessed a positive surge in fees. Notably, Ether (ETH) has collected over $2.2 billion in fees on an annualized basis, highlighting the significant user activity within the DeFi space.
The number of non-zero addresses is an essential indicator of the level of active participation in the crypto market. When this number increases, it suggests a rising demand and often serves as a sign of a potential bull market. Non-zero addresses are reliable indicators of demand as individuals are more likely to hold a cryptocurrency token if they anticipate its value appreciation or actively utilize a protocol. In the case of DeFi tokens, isolating statistics from the broader crypto market, the number of non-zero addresses reached an all-time high of 1.1 million addresses on November 8. Compared to the same date in 2020, when there were only 267,180 non-zero wallet addresses, this growth demonstrates the expanding user base and demand within the DeFi market.
While the DeFi market may be characterized by volatility and occasional setbacks, it has proven its ability to recover and evolve. To navigate this unpredictable landscape successfully, traders must carefully assess on-chain metrics and other macro factors. By keeping a close watch on TVL, platform fee revenue, and the number of non-zero wallets, traders can gain valuable insights into the overall health of the DeFi market and potentially identify the emergence of a new bull market. As the DeFi sector continues to innovate and mature, these key metrics will undoubtedly shape the strategies and decisions of traders aiming to capitalize on this exciting and transformative area of the crypto industry.