Since the second half of 2021, the crypto market, especially the secondary market, has seen noticeably less buzz around DeFi. Market leadership was first assumed by NFT marketplaces like OpenSea, then passed to the GameFi sector represented by projects like Axie Infinity. The kind of explosive growth seen during the DeFi Summer of 2020 hasn’t repeated in the past six months. Even though the total value locked (TVL) in DeFi smart contracts on major blockchains like OKTC and Ethereum continued to climb during this period, the market reaction has been lukewarm. Why is that?
Total Value Locked in DeFi Reaches New Highs
When measuring the scale of DeFi’s growth, one of the most important metrics is the total value locked (TVL) in DeFi smart contracts. Simply put, TVL represents the total value of all digital assets—including ETH, various ERC-20 tokens, and even cross-chain Bitcoin—locked in these contracts. It reflects how much real capital investors are putting into DeFi liquidity mining, thereby helping the ecosystem grow.
As of late November 2021, the total TVL in DeFi smart contracts reached $203.67 billion, setting a new record.
Looking at the data over the year, TVL started at around $23.67 billion in early January, rose to a阶段性 high of $113.57 billion in mid-May, then went through a correction period from May to August. In the following months, however, it not only recovered but continued to grow, marking a year-to-date increase of over 760%. Despite these strong on-chain figures, the token prices of most leading DeFi protocols did not reflect the same momentum.
For example, major governance and utility tokens such as MKR and COMP in the lending sector, and UNI, 1INCH, and SUSHI among decentralized exchanges, have mostly remained within the trading range established after the May 19 market decline. In contrast, assets like Bitcoin and Ethereum broke out to new all-time highs.
Between June 2020 and the end of Q1 2021, total TVL grew from just over $1 billion to more than $65 billion—a 60-fold increase. During that period, most major DeFi tokens also saw price increases of 10x or more. However, in the following three quarters, even though TVL continued to rise, most DeFi tokens did not exceed their previous peaks. This created a clear disconnect between TVL growth and token price performance.
Why Rising TVL Isn’t Driving DeFi Token Prices
This situation can be attributed to two main factors.
First, a significant portion of the new locked value comes from the growth of DeFi ecosystems on emerging blockchains and the rising price of major digital assets—not necessarily from a large influx of new ETH or groundbreaking innovation in DeFi mechanisms.
It’s important to remember that TVL is measured in U.S. dollars, but users lock up digital assets like ETH or BTC. This means TVL is affected by both the number of tokens locked and their market price. Even if the amount of a token locked remains unchanged, its dollar value will rise if the token’s price increases. Conversely, if the token’s price falls sharply, TVL could drop even if more tokens are added.
What investors can control is how much they deposit—based on projected yields—but they can’t control market price movements. Therefore, it’s often more meaningful to look at the amount of tokens locked rather than just the dollar value.
According to recent data, the amount of ETH locked in Ethereum DeFi contracts was around 9.7 million, slightly lower than the Q2 peak of 11 million. At the same time, the amount of Bitcoin locked in DeFi smart contracts reached 228,000—a 50% increase since Q2.
Combined with the expansion of DeFi on newer blockchains like OKTC and the broader crypto market recovery, these factors help explain the divergence between on-chain activity and token prices.
Second, DeFi is currently in a consolidation phase. Whether judged by market attention, technical progress, or mechanism design, the sector is gathering strength for its next major breakthrough.
Almost every technological wave—from the early internet to Bitcoin—goes through cycles including accumulation, acceleration, expansion (with bubbles), and cooling-off periods. The same is true for DeFi.
Since the introduction of MakerDAO, DeFi went through more than three years of accumulation (2017–2020) before entering a rapid growth phase and a bubble period—exemplified by the explosive liquidity mining trend that began during DeFi Summer 2020 and peaked in Q2 2021.
It’s worth noting that in the early stages of technological innovation, a "bubble phase" isn’t necessarily negative. In fact, it often attracts a surge of capital and talent. This creates powerful wealth effects, draws in more users and developers, and accelerates underlying innovation. Through this process, new ideas are tested, and their real-world utility is proven.
Today, after more than a year of rapid expansion, millions of users have participated in DeFi and recognized the potential of decentralized finance. Innovations like permissionless lending (pioneered by MakerDAO) and automated market making (popularized by Uniswap) have introduced radical new models to the world of finance—with implications far beyond short-term token prices.
At the same time, as more users have entered the space, average yields have normalized. High barriers to entry and often complex user interfaces have also made it difficult for less technical users to participate.
In short, DeFi’s current quiet phase stems from two challenges: a lack of recent breakthrough innovations, and slower growth in its user base. Many of the earlier issues—such as liquidity fragmentation and slow governance—remain unresolved. Development around "DeFi 2.0" is still in early stages without a clear consensus on direction.
While new chains like OKTC have contributed to rising TVL, this alone isn’t enough to launch DeFi into a new cycle of expansion. The recent excitement around NFTs and GameFi appears to be following a similar trajectory to DeFi’s earlier growth. There’s nothing new under the sun—whether DeFi, NFTs, or GameFi, each is moving through the inevitable stages of technological adoption.
👉 Explore more strategies on DeFi investment
Frequently Asked Questions
What is Total Value Locked (TVL) in DeFi?
TVL represents the total amount of digital assets deposited in DeFi protocols. It is often used to gauge the growth and adoption of decentralized finance, as it reflects user trust and capital commitment.
Why aren’t DeFi token prices rising with TVL?
TVL can increase due to asset price appreciation alone, not just new capital inflows. Also, many investors are diversifying into newer trends like NFTs and GameFi, which reduces buying pressure on DeFi tokens.
What is DeFi 2.0?
DeFi 2.0 refers to a new wave of protocols aiming to solve issues like impermanent loss, liquidity fragmentation, and scalability. However, the space is still experimental, and no dominant model has emerged yet.
How can new users get started in DeFi?
Beginners should start by understanding key concepts like liquidity pools, yield farming, and risks such as smart contract vulnerabilities. Using established platforms and never investing more than you can lose is essential.
Is DeFi still a good investment?
While短期 returns may be modest compared to newer trends, many believe DeFi’s long-term value proposition remains strong. It helps to focus on projects with solid fundamentals, active development, and clear utility.
What role do new blockchains play in DeFi growth?
Newer chains offer lower fees and higher throughput, attracting users and developers. This multi-chain expansion helps grow the overall DeFi ecosystem, even though it may dilute attention from older platforms.