Since the "DeFi Summer" of 2021, the decentralized finance (DeFi) landscape has undergone significant evolution. Today, DeFi comprises multiple mature sectors, each demonstrating self-sustaining growth and activity. Despite this progress, the industry remains in its early stages, especially when considering that the total cryptocurrency market capitalization is approximately $3.3 trillion, compared to traditional finance (TradFi), which boasts a market cap of around $133 trillion.
At its core, DeFi aims to provide innovative and efficient systems that address the inefficiencies of TradFi through proven product-market fit (PMF). The DeFi ecosystem consists of several key sectors, most of which exhibit an oligopolistic structure, where a few dominant players control the majority of market share.
Decentralized Exchanges (DEXs)
In the fourth quarter of 2024, Raydium, an automated market maker (AMM) built on Solana, captured approximately 61% of the market share among decentralized exchanges, surpassing Uniswap as the industry leader. Notably, Raydium's total value locked (TVL) is only about 39% of Uniswap's. While Raydium's rise may be attributed to the memecoin season on Solana, its long-term user retention and sustainability remain uncertain.
Perpetual Decentralized Exchanges (Perp DEXs)
The perpetual DEX sector displays clear winners. Hyperliquid has significantly solidified its dominance since the third quarter of 2024, increasing its market share from 24% to 73%—a threefold growth. Since Q4 2024, the overall trading volume on perp DEXs has been recovering, with daily trading volume now around $8 billion, up from $4 billion during that period. Hyperliquid continues to challenge centralized exchanges (CEXs) as a platform for price discovery.
Lending Protocols
In the lending sector, Aave's dominance has grown substantially since 2024:
- Deposits increased from 42.1% to 65.78%
- Borrowings rose from 31% to 61%
Even though Aave does not always offer the most attractive yields, its long-standing reputation and user trust have made it the preferred choice in the lending space.
Yield Protocols
Pendle leads the yield sector with a market share exceeding 50%. Its unique value proposition lies in being the primary driver for discovering value across the industry. Despite a general slowdown in DeFi market activity and subdued sentiment, Pendle has maintained record TVL levels.
Liquid Staking (LST)
With a TVL of approximately $35 billion, liquid staking is the largest sector in DeFi by a significant margin. Lido Finance is the undisputed leader, holding about 70% market share—almost monopolizing the LST space. Lido's TVL of $24.8 billion is 5.17 times that of its closest competitor, Binance's bETH, which has a TVL of $4.8 billion.
This dominance is not driven solely by staking yields but by the asset value of stETH:
- Optimal asset utilization: stETH is the most integrated asset across DeFi
- Trusted service: The go-to institutional-grade staking solution for funds and entities
Credibility and trust are critical factors driving adoption.
Liquid Restaking (LRT)
The liquid restaking market follows a similar trend. Notably, ether.fi's market share increased from 35.3% to 63%. Even though ether.fi experienced a decline in S1 and S2 staking volumes, its TVL grew by approximately 770% in 2024.
This growth can be attributed to:
- First-mover advantage in the ecosystem
- Extensive DeFi integrations
- Trust in its product suite
BTC-Fi and Lombard
Lombard's performance in the BTC-Fi sector closely mirrors trends in the LST and LRT markets, with its market share steadily rising to 49.5%. As Babylon matures, demand for Bitcoin as a primary security asset is expected to grow exponentially, presenting a $2 trillion market opportunity.
Since LBTC is the most integrated, widely used, and security-focused LRT in DeFi, Lombard is positioned to become the primary asset for institutional trust and broad adoption, much like stETH. Lombard is expected to dominate this emerging sector.
The Future of DeFi
It is evident that various DeFi sectors have found their product-market fit, forming a cohesive ecosystem that complements one another. This represents the rise of new primitive sets capable of disrupting CeFi.
As DeFi enters its next phase of expansion, we can expect more new verticals to tap into untapped markets and even integrate with TradFi:
- Ethena Labs: Plans to integrate TradFi payments
- Mantle: Mantle Index Fund and Mantle Banking aim to merge cryptocurrency with TradFi
With growing institutional interest in DeFi—such as BlackRock's participation through BUIDL, WLFI's DeFi investment portfolios, and spot ETFs—the future of DeFi looks promising. 👉 Explore advanced DeFi strategies
Frequently Asked Questions
What is DeFi?
DeFi, or decentralized finance, refers to financial services built on blockchain technology that operate without traditional intermediaries like banks. It includes lending, borrowing, trading, and earning interest through decentralized protocols.
Why do some DeFi sectors show oligopolistic structures?
Oligopolistic structures emerge due to factors like network effects, first-mover advantages, and user trust. Dominant protocols often benefit from deeper liquidity, better integration, and stronger community support.
How does liquid staking work?
Liquid staking allows users to stake their cryptocurrencies (e.g., ETH) and receive a liquid token (e.g., stETH) in return. This token can be used across DeFi while still earning staking rewards.
What is the difference between LST and LRT?
LST (liquid staking tokens) represent staked assets like ETH, while LRT (liquid restaking tokens) represent restaked assets that secure multiple protocols or services, often offering additional rewards.
Is DeFi safe to use?
While DeFi offers innovative opportunities, it also carries risks like smart contract vulnerabilities and market volatility. Users should research protocols, use audited platforms, and start with small amounts.
How can institutions participate in DeFi?
Institutions can engage in DeFi through tokenized funds, ETFs, or directly using compliant platforms. Many are also exploring integrations between TradFi and DeFi for enhanced efficiency.