The Birth of DeFi 2017 - Low TVL - High Marketcap

Before Total Value Locked (TVL) even begins to show up in our dataset the seeds of DeFi were being laid in the crypto winter of 2018. Initial adoption of DeFi dates back to 2017 with projects like MakerDAO, and later in 2018 with Uniswap and Compound solidifying the foundation for DeFi. MakerDAO introduced the first decentralized stable coin, DAI, which was a significant step for DeFi lending. Uniswap followed up by introducing Automated Market Making (AMM) which was a huge breakthrough for liquidity provisioning. Then Compound led the way with lending and borrowing in DeFi. 

Key Findings:

DeFi Exploded After the 2020 Bitcoin Halving

• In May 2020, DeFi TVL crossed $1 billion and surged to $10 billion by September—a 900% increase in just a few months.

• Innovations like yield farming, liquidity mining, and flash loans fueled this rapid growth.

DeFi TVL Peaked at $174 Billion in 2021 but Faced Major Crashes

• DeFi TVL soared from $10 billion in September 2020 to $174 billion in November 2021 a 1,640% increase in just over a year.

• However, the 2022 Terra/LUNA collapse wiped out $60 billion in 1 month, sending TVL crashing from $140B to $38B—a 72.8% decline within 2 months.

DeFi's Resilience Despite Fluctuations

• DeFi rebounded from $38.45B in December 2022 to a peak of $127.79B in January 2025, marking a 232% increase.

• However, by February 6, 2025, TVL dropped to $107.95B, a 15.5% decline from January, showing ongoing market volatility.

• Despite fluctuations, DeFi's ability to recover underscores its long-term growth potential and adaptability.

Ethereum Leads DeFi but Faces Growing Competition

• As of January 2025, Ethereum holds 53.3% of DeFi TVL, though it's gradually losing dominance.

• Solana (9.1%), Tron (5.8%), Bitcoin (5.7%), and BNB Chain (4.5%) follow, with 56 chains now tracked showing an increasingly multi-chain DeFi landscape.

The Future of DeFi Lies in AI Integration (DeFAI)

• AI-powered DeFi (DeFAI) is gaining traction, making DeFi more efficient and user-friendly.

• With a pro-crypto U.S. administration, DeFAI is projected to grow from $1B to $10B by 2025 a 900% surge, likely driving the next wave of DeFi adoption.

Layer 2 Scaling and Cross-Chain Solutions Are Expanding DeFi’s Reach

• Polygon and Optimism helped solve Ethereum’s scalability issues, enabling more DeFi applications.

• Cross-chain bridges and interoperability solutions have allowed DeFi to expand beyond Ethereum, creating a more connected and accessible ecosystem.

DeFi TVL of multiple blockchains combined as of Jan 20, 2025

Crypto Market Trend 

2017 Bull run  / 2018 Bear market

As the crypto market peaked in 2017 so did creativity, DeFi was spun out. TVL was a small fraction of overall market cap, but interest was growing, and MakerDAO got busy laying the groundwork for what would become a multibillion dollar industry with the potential to unlock trillions of dollars.

Bitcoin Halving 2020

The Bitcoin halving tends to lead to a supply shock narrative which increases interest in crypto. This is exactly what happened with DeFi in 2020. The Bitcoin halving in May of 2020 led to the rise of DeFi as that month DeFi broke over $1 billion in TVL, and was at $10B by the end of summer. 

Crypto Boom 2020 - 2021 TVL Soars to All Time Highs

Our dataset first started tracking TVL in January 2019, with a modest $220M. At this time, MakerDAO had been building for two years, and Uniswap and Compound were both looking at a year in the market. The foundation for DeFi was split and was poised for explosive growth, which arrived during DeFi Summer. The TVL soared into the billions, and by September 2020 a new ATH for TVL at $10B, which it has never dropped below that since. 

DeFi summer brought new products, with the launch of yield farming, and liquidity mining. Uniswap began gaining traction. Yearn Finance launched aggregated yield farming strategies making DeFi accessible to more people. Aave expanded lending protocols in December 2020, by introducing flash loans and new interest rate models, and in January 2020 Curve Finance began to focus on stablecoin trading like DAI, USDT, USDC and others, which improved the liquidity situation for stablecoins immensely. 

The following year projects began to tackle scaling issues. Layer 2 scaling began to take hold with projects like Polygon who launched their mainnet in October 2020, and Optimism launched in January 2021, which helped to scale DeFi on Ethereum. The next logical step was the introduction of cross chain protocols to foster interoperability between different blockchains and networks, further expanding DeFi’s reach. 

Regulatory & Security Measures Resulting from the 2020 Crypto Boom

The great crypto boom of 2020 wasn’t all sunshine and rainbows though, there were some negative events that impacted the space. With rising popularity, and more money flowing into TVL, scams also rose. In 2020 there were multiple hacks in the bZx Exploits that led to significant losses, and highlighted some early DeFi vulnerabilities, like oracle manipulation Feb 14, 2020, flash loan exploits Feb 18, 2020, smart contract logic bugs Sept 2020 and again November 2021, centralization risks, liquidity and slippage issues, and security audit oversights. 

After bZx some other notable exploits included a flash loan attack against Harvest Finance in October 2020, with losses of $24 million, the largest for its time. Then in Feb 2021 Yearn Finance was exploited. Yearn was not hacked, but their governance model faced scrutiny for being centralized under the banner of decentralization. Key decisions for partnerships were left to the core team, or multi-sig wallet holders. When votes were held, turnout was low, and the fairness of the governance token distribution was called into question, which led to Sybil attacks and regulatory or compliance risks. 

In August 2021 TVL hit $119 Billion in DeFi, a new record, and Poly Network was hacked, highlighting vulnerabilities in cross-chain bridges connecting layer 1 blockchains. The hack exploited the crosschain messaging protocol on the Poly Network. The attackers bypassed the regular security checks by manipulating the contract between calls. Financial losses mounted to $600 million making it one of the largest DeFi attacks in history at the time with a twist. The hacker reached out and began communicating about the exploit, and Poly Network answered by awarding a $500,000 bounty to return the funds, offering them a position in security. 

Crypto Market Trend 

2020 Bull Market - 2021 Market Highs

DeFi TVL saw its first significant surge, correlating with the broader market’s recovery from the 2018 bear market during DeFi Summer of 2020, which occurred alongside a crypto bull market, with both retail and institutional interest in crypto increasing, directly boosting TVL. In 2021 TVL peaked at $174 billion in November 2021, directly correlating with Bitcoins all time high of that cycle. There became a positive correlation as DeFi became a significant part of the crypto narrative, with TVL often acting as a leading indicator for market sentiment in crypto.

DeFi Stabilization and Maturation 2021 Onwards - TVL Stables Out

By August 2021 DeFi TVL reached over $100B and stayed above for over 9 months. The introduction of layer 2 solutions like Polygon and Optimism to solve Ethereum's scalability issues began to take hold, and contributed to the growth of TVL. As these layers became embedded into the DeFi ecosystem, projects began to build more and more DeFi applications on them. 

Then in the spring of 2022 Terra/LUNA collapsed, which had a significant impact on the DeFi space. May saw $60 Billion wiped away, and TVL again fell to $80 billion down from $140B in April. As 2022 progressed DeFi plummeted to $38 Billion and hit a new low of $38 Billion. The depegging of LUNA’s stable coin was harsher on DeFi than FTX falling. By November TVL was already on the rise again, and remained on an upward trend since.

DeFi TVL Recovery 2024 and Beyond

Through 2023 DeFi TVL continued to recover in a general upward trend. In May of 2024 TVL crested over the $100 billion mark once again. It did not hold there, but did dip below $80 billion after that, and then in November TVL reached over $100 billion in total value locked. January 2025 has seen further moves hitting as high as $127 billion TVL.

Biggest Blockchains used in Decentralized Finance (DeFi) as of February 2025

As of February 2025, the Ethereum network holds the lion’s share of TVL with 53.3%, followed by Solana in second place with a modest 9.1%. Rounding out spots 3 and 4 are Tron with 5.8% and Bitcoin with 5.7%. The BNB Chain is at 4.5% and in the 5th position. The next five spots go to Base, Arbitrum, Sui, Hyperliquid and Avalanche. Ethereum is slowly losing market share as other chains make their way into the DeFi space with 56 chains in total being tracked in this data. 

Future Outlook

DeFi and DeFAI

Executing DeFi operations efficiently is a cumbersome process that takes some tech savvyness. Navigating between protocols and chains via bridges, and abstraction layers gets complex. Luckily DeFAI is gaining tracking, and the next wave of growth for DeFi will likely incorporate AI agents who can execute many of the products far more efficiently than humans can. DeFAI currently valued at $1 billion is projected to hit at least $10 billion by the end of 2025, and with the new regulatory friendliness coming from the US with the first pro crypto president. 

The sustained recovery in 2024 and 2025 highlights DeFi's potential as a transformative financial technology. Innovations like Layer-2 solutions, cross-chain interoperability, and decentralized autonomous organizations (DAOs) are expected to drive further adoption.

While challenges remain, the resilience of the ecosystem, evidenced by its rebound from $38.45 billion in December 2022 to over $127.79 billion in January 2025, underscores its capacity to adapt and grow. However, by February 6, 2025, TVL dropped to $107.95B. 

As the DeFi landscape matures, investors and developers alike are likely to play a pivotal role in shaping its trajectory, ushering in a more efficient, scalable, and accessible financial ecosystem.