Why is the DeFi track big pump?

Jessy, Golden Finance

In the past month, the DeFi sector has experienced a big pump, with Sushi rising nearly 30% in 24 hours, and has quadrupled from its low point in November. Uni has also achieved a threefold increase in the past month, while DYDX has seen a nearly threefold rise. In addition, the project Hyperliquid, which issued coin on November 29th, has seen a Token rise of up to 52% in the past week, with a Market Cap surpassing Arbitrum.

In the past period, the market capitalization of Decentralized Finance has rapidly climbed from $705 billion to $1324 billion, with an average increase of 87% for Tokens, significantly outperforming the overall Cryptocurrency market’s average increase of 67%.

The collective pump of the Decentralized Finance project has performed well in the various sectors, not simply rotating in the Bull Market’s zone or due to the ‘general rise’ factor. It is backed by the changing regulatory expectations and the solid fundamentals of the Decentralized Finance projects themselves, achieving sustained profitability, and so on.

pump magnitude

According to Messari data, in the past thirty days, Uni’s increase is 85%, Crv’s increase is 289%, DYDX’s increase is 94%, COMP’s increase is 125%, RSR’s increase is 110%, ZRX’s increase is 101%, 1inch’s increase is 95%, Ondo’s increase is 104%, Sushi’s increase is 208%, AAVE’s increase is 35%, OM’s increase is 177%, Torn’s increase 357%.

The market capitalization of the top 14 (excluding the stablecoin Dai) decentralized finance tokens

pump reasons

1. US regulation improves

The collective pump of Decentralized Finance, especially the collective pump of the old Decentralized Finance, seems to have broken people’s investment cognition of ‘not speculating on new things but on old things’ in the crypto world, and the real reason for its pump comes not only from the influx of funds brought by the Bull Market, but more from people’s optimism about the future of the Decentralized Finance track, and this optimism mainly comes from the improvement of US regulation.

In recent years, regulatory agencies such as the CFTC and SEC in the United States have continuously accused and penalized companies that operate in the Decentralized Finance field without proper registration. For example, in September 2023, the CFTC issued orders simultaneously initiating and settling charges against Opyn, Inc., ZeroEx, Inc., and Deridex, Inc. These companies were accused of failing to register as a trading execution facility or designated contract market, failing to register as a futures commission merchant, and failing to implement customer identification programs under the Bank Secrecy Act.

Currently, the wind is shifting, and after Trump was elected as the next president of the United States, some analysts believe that there is a wave of ‘regulatory optimism’ due to traders expecting the Trump administration to enhance the attractiveness of holding ‘practical’ tokens as investments. The market expects that Decentralized Finance projects and their tokens will face a more favorable environment.

First, the “21st Century Financial Innovation and Technology Act” (FIT 21 Act) may prioritize the enactment of this “most important encryption act to date” after Trump takes office. It not only clearly defines when Cryptocurrency is a commodity or security, but also puts an end to the SEC and CFTC’s “tug of war” over encryption regulation. The US House of Representatives previously passed the bill with an overwhelming majority and submitted it to the Senate, but the latter did not take decisive action. However, with Trump taking office, the market widely expects the progress of this bill to accelerate.

After the FIT 21 bill is passed, Compliance trading platforms and encryption-listed companies will appear more frequently. The clear attribute standards will also make the tradable Tokens more abundant and provide new opportunities for Spot ETFs and other encryption financial products.

FIT 21 will also promote innovation in the application of Decentralization, especially the development of the Decentralized Finance track. FIT 21 clarifies that if a token is judged to be Decentralized and functional, it is considered a digital commodity and is not regulated by the SEC, and as long as the degree of centralization meets the requirements, it can obtain a certain exemption period, which will encourage more Decentralized Finance projects to evolve in the direction of more Decentralization. The bill also requires the SEC and CFTC to study the development of decentralized finance, assess its impact on the TradFi market and potential regulatory strategies, and add a waiver period factor that will attract more decentralized finance projects to “repatriate”.

In addition to Trump’s promises in the crypto market and the previously proposed Financial Innovation and Technology Act of the 21st Century (FIT 21 Act), the recent Tornado Cash incident also marks a more open and friendly direction for crypto market regulation in the United States. At the end of November, the US Fifth Circuit Court of Appeals ruled that the sanctions imposed by the Treasury Department on the immutable Smart Contracts of Tornado Cash were illegal, considering that these Smart Contracts do not fit the legal definition of “property”. This ruling provides important support for the legality of Smart Contracts, enabling developers and users to use these protocols without facing direct conflicts with traditional legal frameworks, thereby promoting a more inclusive, friendly, and free direction for finance and directly benefiting the flourishing development of Decentralized Finance.

2. Continued optimism in capital

With the continuous development and application of blockchain technology, people are full of confidence and expectations for the future development of Decentralized Finance. It is generally believed that Decentralized Finance will become an important transformative force in the future financial field, and this positive expectation has driven investors to purchase and hold Decentralized Finance assets.

Especially the strong interest of large capital in the Decentralized Finance track, more and more investment institutions are beginning to follow and layout the Decentralized Finance field,、

In 2024, Comma 3 Ventures and OtterSec invested in Scallop on SUI, which is a lending protocol in the SUI ecosystem. The current Total Value Locked (TVL) has reached $61.4 million, making it the first Decentralized Finance project sponsored by the SUI Foundation. In the same year, A16Z invested $100 million in EigenLayer. EigenLayer gained significant attention for introducing the re-stake feature, and its TVL surged to over $10 billion, ranking among the top three Decentralized Finance projects. In addition, A16Z also invested in lending protocols like Compound Labs earlier than this year.

Large capital’s continued optimism and investment in Decentralized Finance not only inject funds into project development but also enhance market confidence, leading retail investors to chase this track.

3. The combination of the DeFi track with TradFi is becoming increasingly close, and it is more and more out of the circle

When it comes to Decentralized Finance, the most prominent application is definitely Stable Coin, whether it’s USDT, USDC, or other Stable Coins, they have been steadily rising. The rich Stable Coin ecosystem meets the basic financial needs of users, such as asset collateralization and peer-to-peer lending, and also lays the foundation for the formation of an inclusive Decentralized Finance ecosystem, which can accommodate a large number of new users.

And now, the integration of Decentralized Finance, CeFi, and TradeFi is becoming increasingly close.

For example, some CeFi institutions have begun collaborating with Decentralized Finance projects to leverage the efficient trading mechanisms and innovative financial products of Decentralized Finance. Some traditional Financial Institutions may custody some assets on their centralized platforms while using Decentralized Finance’s Decentralization exchange for executing some trades. This can improve trading efficiency and drop Transaction Cost. For instance, traditional banks can trade clients’ encryption assets on DEX such as Uniswap through Smart Contract interfaces, which allows them to leverage the bank’s reputation and secure custody services while enjoying the advantages of Decentralized Finance’s Decentralization trading.

Many trading platforms, while providing traditional trading services, are also beginning to integrate liquidity pools and trading pairs from Decentralized Finance. For example, some platforms that support Cryptocurrency futures trading will use Stable Coins from Decentralized Finance projects as Margin or Settlement coins, allowing users to simultaneously engage in traditional futures trading and asset trading based on Decentralized Finance on one platform.

The fundamentals of the Decentralized Finance project itself are good, as well as continuously profitable.

Taking Uniswap as an example, its governance token UNI was once considered useless. However, by October 2024, everything started to change. Uniswap launched the second-layer network Unichain on the Ethereum network, where node operators of this chain need to stake UNI tokens on the Ethereum network to become validators on Unichain. Participants who stake UNI can receive corresponding benefits, including a share of transaction fees and potential block rewards. This incentivizes more users to participate in the maintenance and development of the Unichain network, while also giving UNI token a certain economic value and investment attractiveness.

In 2024, on-chain Decentralized Finance protocols also ushered in a profitable year. For example, according to the report from Kairos Research, Maker Dao (SKY) is expected to generate approximately $88.4 million in net protocol revenue throughout 2024. And the valuation of MKR is $1.6 billion, only 18 times the net income.

The Decentralized Finance project itself is also constantly innovating and iterating. Taking the recently popular project Hyperliquid as an example, it is a perpetual Contract Trading exchange with Decentralization, as well as a Spot market, actively promoting the meme culture. The team has also developed a high-frequency trading-optimized L1 public chain, aiming to build a complete on-chain financial ecosystem, driving innovation in the Decentralized Finance field, and further expanding into efficient Decentralization Options markets. In terms of user use, one-click trading without Wallet authorization greatly simplifies the trading process and lowers the user threshold. In terms of trading products, it offers a wealth of trading functions and high leverage trading. As a perpetual Contract Trading exchange, it provides advanced trading functions such as TWAP, scale orders, and TP/SL orders, and allows users to trade with leverage of up to 50 times, meeting the diverse needs of professional traders. Moreover, these trades currently do not require Gas fees. In addition, the project conducted a large-scale Token Airdrop on November 29, distributing a total of 310 million HYPE Tokens, accounting for 31% of its total 1 billion Token supply. The Airdrop scale reached 620 million USD, causing widespread follow-up in the market and the participation of a large number of investors.

Summary

Overall, the Decentralized Finance project Token has been continuously pumping, as it gradually integrates into TradFi, and the market demand continues to increase. Looking at the micro-level, we can see the improvement in regulatory expectations, the enhanced profitability of high-yield Decentralized Finance products, the continuous enrichment of products, and the empowerment of Tokens, etc.

Decentralized Finance, as the most important innovation in the encryption industry, continues to be bullish.