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

A

report

by
Steno
Research
states
that
the
decentralized
finance
(DeFi)
summer
on
Ethereum
and
the
crypto
market
could
return
as
early
as
2025.
Four
years
after
the
fondly
remembered
DeFi
summer
of
2020,
the
total
value
locked
(TVL)
in
protocols
can
hit
an
all-time
high
by
early
next
year.

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

Lower
Ethereum
Fees
Crucial
To
Attract
Investors

Ethereum
(ETH)
has
historically
led
the
DeFi
wave,
boasting
the
highest
TVL
locked
into
its
protocols
among
all
other
smart-contract
blockchains.
According
to
DeFiLlama,
the
TVL
locked
in
Ethereum-based
protocols
currently
stands
at
approximately
$50.11
billion.

Ethereum
is
followed
by
Tron
(TRX)
and
Solana
(SOL),
with
a
TVL
of
$8.27
billion
and
$4.99
billion,
respectively.
The
enormous
difference
between
TVL
locked
in
Ethereum
and
all
its
competitors
gives
a
fair
idea
about
the
significance
of
the
Ethereum
blockchain
in
the
nascent
space.

Unsurprisingly,
it’s
evident
that
for
any
meaningful
DeFi
wave
to
rise,
Ethereum-based
protocols
must
be
accessible
to
all
industry
enthusiasts,
big
and
small
alike.
Steno
Research
posits
that
lower
Ethereum
network
fees
are
important
to
make
its
ecosystem
more
accessible. 

Interest
Rate
Cuts
Could
Pave
The
Way
For
DeFi
Summer

The
report
by
Steno
Research
posits
that
the
change
in
U.S.
interest
rates
will
play
a
crucial
role
in
determining
DeFi’s
comeback.
Since
the
emerging
market
is
largely
denominated
in
USD,
a
series
of
rate
cuts
could
increase
investor’s
risk
appetite,
leading
them
to
invest
in
more
risk-on
assets,
including
digital
assets.

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

Interest
rates
are
the
most
critical
factor
influencing
the
appeal
of
DeFi,
as
they
determine
whether
investors
are
more
inclined
to
seek
out
higher-risk
opportunities
in
decentralized
financial
markets.

The
report
adds
that
the
DeFi
summer
of
2020
was
also
buoyed
by
the
Federal
Reserve’s
interest-rate
cuts
in
response
to
the
COVID
pandemic.
As
a
result,
the
subspace
witnessed
an
all-time
high
TVL
locked
into
its
protocols
in
2021,
peaking
at
over
$175
billion. 

An
example
of
the
high-risk-seeking
behavior
of
investors
in
2020
is
the
popularity
of
passive
investment
strategies
like
yield
farming.

For
the
uninitiated,
yield
farming
allows
investors
to
“farm”
yield
on
their
tokens
by
providing
liquidity
to
liquidity
pools
of
decentralized
exchanges
(DEX),
lending
platforms,
or
other
applications.

However,
Vitalik
Buterin
has
expressed
concerns
about
the
sustainability
of
such
short-term,
high-risk
reward
strategies.

2024
is
a
lot
different.

While
no
global
pandemic
is
at
work,
interest
rates
have
remained
high
to
tackle
high
inflation,
discourage
consumer
spending,
and
influence
currency
value.
However,
with
cracks
starting
to
appear
in
the
US
jobs
market,
the
Federal
Reserve
is
expected
to
initiate
a
series
of
interest-rate
cuts
from
September
onwards.

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.

Further,
demand
for
real-world
assets
(RWAs)
in
the
broader
ecosystem
has
grown
substantially
in
the
broader
ecosystem,
indicating
a
healthy
appetite
for
on-chain
financial
products.
Examples
of
such
RWAs
include
tokenized
stocks,
bonds,
and
commodities.

While
the
prospect
of
another
DeFi
summer
sounds
appealing,
investors
should
be
wary
of
the
risks
associated
with
the
safety
of
their
digital
assets.

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