DeFi resurgence driven by Fed cuts, China, key protocols

Apollo Crypto, an investment management firm specializing in digital assets, released a report highlighting the potential for a second wave of growth in decentralized finance (DeFi).

A market slowdown followed the peak of “DeFi Summer” in 2020, the report noted, though protocols like Maker, Uniswap and Aave have emerged as industry staples.

“As of today the total DeFi TVL sits at approximately US$105 billion with many calling for the resurgence of DeFi and a return to the strong fundamentals it offers.”

Fed cuts and China credit expansion

The Apollo Crypto report identifies macroeconomic factors, including the United States Federal Reserve’s recent interest rate cut and China’s credit expansion, as key drivers behind DeFi growth.

The report notes that the Fed’s rate cut has created a more attractive option for risk-on assets, including cryptocurrencies like Bitcoin and Ether.

It also highlights the boost to DeFi from the People’s Bank of China’s (PBOC) decision to reduce short-term interest rates and establish supportive lending measures:

“Historically the performance of Bitcoin has been positively correlated with the PBOC’s total asset growth … and as such this proves to be another possible bullish catalyst.”

Infrastructure and UX improvements

The report also mentions DeFi infrastructure, citing “a focus on building infrastructure in crypto over the last few years” to establish “an abundance of cheap block space.”

This has allowed decentralized applications (DApps) to access block space “with more performant speeds,” and lowered transaction costs on layer-2 scaling solutions.

Apollo Crypto points to Coinbase’s cbBTC, a tokenized version of BTC, as a potential game changer that could attract capital to the DeFi industry, offering an alternative to traditional exchange-traded funds (ETFs):

“When a user sends bitcoin from their Coinbase account to an address on the Ethereum or Base network, the BTC is now automatically converted into cbBTC at a 1:1 ratio, this will allow users to rotate from BTC into alternative crypto assets with more ease than ever.“

Key protocol catalysts

According to the report, Aave remains a leading decentralized lending platform, while Uniswap holds its position as the highest-volume decentralized exchange.

Although Maker is also noted as retaining its position as a catalyst in the DeFi resurgence, its recent rebranding to the Sky ecosystem has drawn mixed reactions.

Sky’s new stablecoin, USDS, saw backlash over a so-called “freeze function,” an element Cinneamhain Ventures partner Adam Cochran called necessary for T-bill backing.

Source: https://cointelegraph.com/news/apollo-crypto-defi-growth-us-china-policy