DeFi market outlook in 2024, the year of technological change

Author: Web3.com Ventures Translation: Shan Oba, Golden Finance

DeFi Market in 2023

The decentralized finance landscape showed significant resilience in 2023, laying a solid foundation for its expected growth in 2024. Despite facing the challenges of a bear market over the past year, DeFi projects have locked up approximately $43 billion in value, demonstrating tremendous potential. Among them, specific tokens and projects outperformed others, marking key trends and areas of innovation in the DeFi space.

$MKR and $COMP emerged as the main drivers of this trend, with $COMP surging 83% in the week following the development of the major project. This performance correlates closely with the new project’s fundamentals, illustrating the impact strategic leadership and innovation can have on a token’s value. Additionally, the overall DeFi Index, comprised of the top 8 DeFi tokens by market capitalization, is up 56% since mid-2023, outperforming other sectors such as GameFi and Stake, a rebound that marks the biggest gain for these tokens since September 2022. best performance. Outperforms ETH relative to ETH.

These cases demonstrate the vitality of the DeFi industry over the past year and its ability to adapt in the bear market. In 2024, the DeFi landscape will see new and transformative growth, driven by Layer 2 developments, regulatory evolution, and increased institutional interest.

Layer 2 development

In 2024, with the arrival of the Cancun upgrade and EIP- With the deployment of 4844, the Layer 2 market will grow significantly, and the further reduction of on-chain transaction fees will increase transaction volume and financial activity.

The upcoming EIP-4844 is a major Ethereum improvement proposal that introduces original danksharding. This feature is designed to increase data availability and reduce aggregation costs. By increasing throughput and reducing costs, EIP-4844 promises to make DeFi applications more scalable and efficient. This improvement could lead to wider adoption of DeFi platforms as they become more user-friendly and able to handle higher transaction volumes at lower costs. Additionally, increased scalability and efficiency provide opportunities for more complex financial products in DeFi. These include complex derivatives, real-time settlement and seamless integration of real-world assets through advanced tokenization processes.

Adoption of L2 solutions is also key to attracting institutional investors and mainstream users, marking a key shift in the trajectory of the DeFi market. In essence, Layer 2 development in 2024 is the cornerstone of DeFi development, promoting its growth, versatility, and integration with the broader financial ecosystem.

Regulatory evolution

Over the past year, the entire crypto industry has faced increasing regulation , especially the CEX industry. Exchanges including Kraken, Coinbase, and Binance have been sued by the SEC. At the same time, as a leader in the encryption market, CZ’s resignation has also cast a shadow on the supervision that the encryption market will face in 2024.

The main trend in countries around the world is to gradually strengthen supervision, and authorities are beginning to recognize the need to strike a balance between cryptocurrency innovation and investor protection and financial stability. This change in stance comes against the backdrop of growing concerns over the security, transparency and potential systemic risks associated with CEX platforms.

For DeFi, regulatory direction is more likely to involve clearer guidelines for the overall operation of DeFi projects, anti-money laundering compliance, and consumer protection measures. Optimistically, we may see collaboration between regulators and the DeFi ecosystem to establish a framework that promotes innovation while ensuring market integrity.

The issuance of Bitcoin spot ETF has always been a topic of widespread speculation and anticipation. If regulators continue to develop their understanding and approach to cryptocurrencies, we could see a Bitcoin ETF approved in 2024. This would mark an important milestone, potentially leading to greater institutional participation and mainstream acceptance of cryptocurrencies. However, this still depends on the regulatory environment being willing to accept such products, balancing potential risks with the advantages they offer in terms of market access and investor protection.

Institutional adoption

Although regulations are becoming more stringent, better alignment A regulatory legal system will also allow institutions to participate more in the cryptocurrency market and increase the adoption of DeFi. As regulatory frameworks become clearer and more inclusive, institutions that were previously hesitant due to legal uncertainty may become more confident in investing. Additionally, DeFi platforms continue to evolve to offer enhanced security and risk management tools that will make these platforms more attractive to institutions.

When traditional financial institutional investors with strong funds enter the DeFi field, they not only bring huge investments, but also raise questions about security, compliance, transparency, etc. higher requirement. The influx of institutions will drive innovation and development in the DeFi field, resulting in more complex financial products and services that meet these high standards.

Growth in institutional adoption in 2024 could significantly increase the TVL of the DeFi market. At the same time, such growth will also add depth to the DeFi industry because such growth involves the professional traditional financial market knowledge that institutional players bring and their responsibilities to traditional investors. Their participation may lead to a more stable and mature DeFi market, potentially attracting more players from the traditional financial sector.

It is foreseeable that the cooperation between regulatory governments and traditional institutional participants will have a positive impact on the DeFi market. All in all, 2024 will be another critical period for DeFi after DeFi Summer, marking the transformation of the entire market into a more integrated, stable and mature decentralized financial ecosystem.

Conclusion

In summary, the DeFi market in 2023 will perform in a dynamic pattern Outstanding flexibility and adaptability. The year marked significant progress and a shift towards greater clarity and stability in the regulatory framework. The evolution of Layer 2 technology brings significant improvements in scalability and efficiency, laying the foundation for enhanced user experience and wider adoption. Looking ahead to 2024, potential adoption of DeFi by institutions is a key factor. This shift promises to inject significant capital, expertise, and credibility into the DeFi ecosystem, potentially facilitating its growth and maturity. As DeFi continues to evolve, it remains a vibrant and important part of the broader financial sector, blending innovation with emerging regulatory and institutional norms.