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DeFi platforms have seen a continuous increase in user activity and token values, prompting some analysts to declare that the ‘DeFi Summer 2.0′ has begun.
Following a blistering start to 2021 that saw token prices and trade volumes skyrocket, the DeFi sector as a whole took a breather as the NFT sector grabbed centre stage.
While investors’ attention was elsewhere, DeFi prices had time to consolidate, and project developers were able to focus on protocol updates. In the last month, DeFi-related tokens have been gathering traction, and they appear to be positioned for a breakout in September.
Data from TradingView shows that multiple DeFi tokens, including Aave (AAVE), Synthetix (SNX), YFI and SushiSwap (SUSHI) have rallied nearly 40% since May 10, while the price of BTC is still 27% away from its all-time high.
The current bullishness in DeFi coins prompted some observers to note that the ‘DeFi summer 2.0’ did, in fact, occur, and on a far larger scale than anyone imagined.
Y’all wanted DeFi summer 2.0? Well it’s here, but at much larger scale and multichain.
First Matic with its $40M incentive program (1% of supply)
Then Avalanche with $180M (now worth ~$450M)
Today Fantom and Celo with $300M and $100M, respectively.
Solana and Terra next?
— Ryan Watkins (@RyanWatkins_) August 30, 2021
On-chain metrics show DeFi is heating up
Various on-chain data indicate a good amount of trading activity and an increasing number of new users interacting with DeFi and DEX protocols, indicating that the DeFi space is heating up.
According to Dune Analytics statistics, the number of new participants entering the DeFi ecosystem has been steadily increasing over the last year, with a total of 3,285,643 users as of Aug. 31.
The continual influx of new users has aided in keeping activity on DeFi lending protocols and decentralised exchanges (DEX) high, with Dune Analytics statistics revealing that weekly DEX volume in August reached levels not seen since late May.
For those concerned that high transaction fees on the Ethereum (ETH) network will make it difficult for smaller investors to participate in the sector, the growing field of layer-two (L2) solutions such as Loopring (LRC) and cross-chain bridges to competing networks such as the Solana ensures that portfolios of all sizes will be able to participate in DeFi investing.
The quick emergence of the Polygon (MATIC), a layer-2 network that has emerged as the top-ranking blockchain in terms of total value locked, is one of the best illustrations of this (TVL). According to Defi Llama data, Polygon is now the fourth-ranked chain in terms of TVL, with almost $4.93 billion invested in the network.
With Bitcoin still struggling to gain traction below $50,000, the market may be entering an altcoin season, and if this occurs, the top DeFi protocols with solid long-term fundamentals are expected to benefit from the bullish momentum.