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

Ash Tiwari
by Ash Tiwari
1 year ago
·
Posted in Ethereum
Trusted Editorial content, reviewed by leading industry experts and seasoned editors. Ad Disclosure

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. 

Related Reading: Here’s Why The Rapid Decline In The Ethereum Fees Could Be A Problem

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. 

DeFi TVL is well under its 2021 peak on the weekly chart | Source: TOTALDEFIUSDT on TradingView.com

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.

Related Reading: Could Interest Rate Cuts Trigger $200 Billion In Altcoin Inflows? Analyst Says ETH ETF Will Be Major Catalyst

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.

Featured image from Unsplash, Chart from TradingView.com
Editorial Process for bitcoinist is centered on delivering thoroughly researched, accurate, and unbiased content. We uphold strict sourcing standards, and each page undergoes diligent review by our team of top technology experts and seasoned editors. This process ensures the integrity, relevance, and value of our content for our readers.
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Ash Tiwari

Ash Tiwari

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Ash is a seasoned freelance editor and writer with extensive experience in the blockchain and cryptocurrency industry. Over the course of his career, he has contributed to major publications, playing a key role in shaping informative, timely content related to decentralized finance (DeFi), cryptocurrency trends, and blockchain innovation. His ability to break down complex topics has allowed both seasoned professionals and newcomers to the industry to benefit from his work. Beyond these specific roles, Ash's writing expertise spans a wide array of content, including news updates, long-form analysis, and thought leadership pieces. He has helped multiple platforms maintain high editorial standards, ensuring that articles not only inform but also engage readers through clarity and in-depth research. His work reflects a deep understanding of the rapidly evolving blockchain ecosystem, making him a valuable contributor in a field where staying current is essential. In addition to his writing work, Ash has developed a strong skill set in managing content teams. He has led diverse groups of writers and researchers, overseeing the editorial process from topic selection, approval, editing, to final publication. His leadership ensured that content production was timely, accurate, and aligned with the strategic goals of the platforms he worked with. This has not only strengthened his expertise in content strategy but also honed his project management and team coordination skills. Ash's ability to combine technical expertise with editorial oversight is further bolstered by his knowledge of blockchain analysis tools such as Etherscan, Dune Analytics, and Santiment. These tools have provided him with the data necessary to create well-researched, insightful articles that offer deeper market perspectives. Whether it’s tracking the movement of digital assets or analyzing blockchain transactions, his analytical approach adds value to the content he produces, ensuring readers receive accurate and actionable information. In the realm of content creation, Ash is not limited to just cryptocurrency markets. He has demonstrated versatility in covering other emerging technologies, market trends, and digital transformation across various industries. His in-depth research, coupled with a sharp editorial eye, has made him a sought-after professional in the freelance writing community. From developing editorial calendars to managing content delivery schedules, he has honed a meticulous approach to project management that ensures timely, high-quality work delivery. Throughout his freelance career, Ash has consistently focused on improving audience engagement through well-researched, insightful, and relevant content. His ability to adapt to the evolving needs of clients, whether it's enhancing the visibility of digital platforms or producing thought-provoking pieces for a wide range of audiences, sets him apart as a dynamic force in the field of digital content creation. His contributions have helped to shape a well-rounded portfolio that showcases his versatility, technical expertise, and dedication to elevating the standards of journalism in blockchain and related sectors.

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