The year 2023 has been very eventful for money markets across DeFi. This blog aims to cover some of the key events (non-exhaustive list) within and adjacent to the DeFi leverage sector, starting with painting an overall picture.

The year saw significant growth in terms of both the number of protocols building in the space and the diversity of features and opportunities within protocols. There are now over 300 lending protocols and 100 CDP protocols building in the space. A lot of new protocols and mechanisms were launched within the year including Morpho Blue, Instadapp Fluid, FraxLend BAMM etc. to name a few - all as a step towards higher capital efficiency across lending markets.

A major trend in 2023 was the integration of real-world assets into DeFi lending. Protocols building for RWAs now host an impressive TVL of >$5.5Bn. MakerDAO led the charge with significant RWA exposure and the strategic investment in US Treasuries and corporate bonds towards mid-2023, marking a pivotal point in bridging traditional finance with DeFi​​. Other platforms like Centrifuge, Goldfinch and Maple Finance also joined the party to fuel a 55% growth in on-chain private credit (check out rwa.xyz for some cool data points).

The tokenisation of real-world-assets coupled with multiple other factors including diversity of lending opportunities, on-chain efficiency, elimination of complex financing structures, flexible credit terms, etc. can help expand the reach and scope of DeFi lending services beyond digital assets. While the realisation of these aspects at scale is yet to be seen, the year 2024 will be an exciting one in this regard.

Existing CDP protocols (majorly MakerDAO, Liquidity) witnessed steady growth through the year. The updates in DAI’s interest rates triggered some fluctuations in Maker’s TVL. We also saw some new CDP protocols acquire significant traction thanks to LSTFi tailwinds, notably Prisma Finance (mkUSD, TVL ~$415M), and Lybra Finance (eUSD, TVL ~$340M). DeFi behemoths Curve and Aave also entered the game with the launch of crvUSD, and GHO. crvUSD’s LLAMA for dynamically liquidating/deliquidating crvUSD position based on the bands of collateral prices was particularly interesting.

There were many more events, both good and bad, in the broader stablecoin ecosystem. Some significant events included FSB’s stablecoin recommendations, USDC and DAI’s depeg during March’s banking crises, discontinuation of BUSD, USDC’s CCTP advancements and native multichain expansion, payments adoption by Visa, Mastercard, Checkout.com, etc. Such resilience in the face of challenges, and the gradual shift toward transparent and more decentralised models can be expected to have a lasting impact on the growth of DeFi leverage over the coming years.

The advancements in L2 scaling solutions and zk technologies were one of the key focus areas for 2023. We saw the launch and growth of multiple ecosystems, notably, zkSync, Base, Mantle, Linea, Starknet, Polygon zkEVM. The DeFi ecosystems within individual ecosystems, mainly Arbitrum and Optimism, also grew significantly, with dexes and lending/borrowing protocols leading the charge.

This was clubbed with developments along the wallet and cross-chain infrastructures. Account abstraction grabbed a lot of attention, with teams at Safe, Argent, Biconomy, etc growing their developer ecosystems. On the cross-chain front, the launches of Chainlink’s CCIP and Layerzero v2 were also exciting.

While these are just a few of the developments on this front, they are set to bolster multi-chain dApp development with much better UX to help onboard the next wave of DeFi users.

All was not great about this year though. There were several notable security incidents with over $1.3B worth of assets lost, which underscored the importance of robust security measures in DeFi. As for DeFi lending markets, Euler’s flashloan attack was the biggest one, affecting assets worth ~$200M, which were later returned making it one of largest recoveries of stolen assets in blockchain history. Aave also experienced a security scare leading to the pausing of certain markets across Ethereum, Arbitrum, Polygon, Optimism and Avalanche. The GHO reserve was also temporarily paused in a separate incident. Furthermore, the centralised CRV position (460M CRV collateral; $110M in stablecoin borrows) held by Curve’s founder on Aave clubbed with the Vyper exploit resulted in the CRV market being systematically disabled and then re-enabled on the platform. The DAO’s governance responses through these incidents were particularly impressive, with multiple stakeholders stepping in and contributing to an informed decision-making process.

Other major security incidents across the broader ecosystem targeted, Mixin network (~$200M), Polonix exchange (~$126M), Multichain (~$130M) and Atomic wallet (~$1150M), raising concerns about the inherent risks in DeFi and the need for constant vigilance​​​​​​.

All that being said, we are still quite far from supporting a DeFi at the scale of the traditional money markets ecosystem. Some of the most exciting problem statements and opportunities within the DeFi leverage landscape in my opinion are

• cross-chain leverage to solve for fragmented liquidity across networks

• a defensible and privacy-preserving reputation system for borrowers

• a decentralised risk-assessment framework for lending markets across networks

• balancing privacy <> transparency in private lending, and tokenisation of RWAs etc.

(here’s an interesting list)

We at Lucidity have talked about the problem of fragmented liquidity and capital inefficiency in the growing DeFi leverage landscape. Lucidity is being built to stitch together this liquidity and to serve as the playground for tackling some of the open problem statements highlighted above.

The year 2024 is going to be pivotal for the development and adoption of DeFi at scale, and I am excited to see what the future holds for the space as a whole!

The year 2023 has been very eventful for money markets across DeFi. This blog aims to cover some of the key events (non-exhaustive list) within and adjacent to the DeFi leverage sector, starting with painting an overall picture.

The year saw significant growth in terms of both the number of protocols building in the space and the diversity of features and opportunities within protocols. There are now over 300 lending protocols and 100 CDP protocols building in the space. A lot of new protocols and mechanisms were launched within the year including Morpho Blue, Instadapp Fluid, FraxLend BAMM etc. to name a few - all as a step towards higher capital efficiency across lending markets.

A major trend in 2023 was the integration of real-world assets into DeFi lending. Protocols building for RWAs now host an impressive TVL of >$5.5Bn. MakerDAO led the charge with significant RWA exposure and the strategic investment in US Treasuries and corporate bonds towards mid-2023, marking a pivotal point in bridging traditional finance with DeFi​​. Other platforms like Centrifuge, Goldfinch and Maple Finance also joined the party to fuel a 55% growth in on-chain private credit (check out rwa.xyz for some cool data points).

The tokenisation of real-world-assets coupled with multiple other factors including diversity of lending opportunities, on-chain efficiency, elimination of complex financing structures, flexible credit terms, etc. can help expand the reach and scope of DeFi lending services beyond digital assets. While the realisation of these aspects at scale is yet to be seen, the year 2024 will be an exciting one in this regard.

Existing CDP protocols (majorly MakerDAO, Liquidity) witnessed steady growth through the year. The updates in DAI’s interest rates triggered some fluctuations in Maker’s TVL. We also saw some new CDP protocols acquire significant traction thanks to LSTFi tailwinds, notably Prisma Finance (mkUSD, TVL ~$415M), and Lybra Finance (eUSD, TVL ~$340M). DeFi behemoths Curve and Aave also entered the game with the launch of crvUSD, and GHO. crvUSD’s LLAMA for dynamically liquidating/deliquidating crvUSD position based on the bands of collateral prices was particularly interesting.

There were many more events, both good and bad, in the broader stablecoin ecosystem. Some significant events included FSB’s stablecoin recommendations, USDC and DAI’s depeg during March’s banking crises, discontinuation of BUSD, USDC’s CCTP advancements and native multichain expansion, payments adoption by Visa, Mastercard, Checkout.com, etc. Such resilience in the face of challenges, and the gradual shift toward transparent and more decentralised models can be expected to have a lasting impact on the growth of DeFi leverage over the coming years.

The advancements in L2 scaling solutions and zk technologies were one of the key focus areas for 2023. We saw the launch and growth of multiple ecosystems, notably, zkSync, Base, Mantle, Linea, Starknet, Polygon zkEVM. The DeFi ecosystems within individual ecosystems, mainly Arbitrum and Optimism, also grew significantly, with dexes and lending/borrowing protocols leading the charge.

This was clubbed with developments along the wallet and cross-chain infrastructures. Account abstraction grabbed a lot of attention, with teams at Safe, Argent, Biconomy, etc growing their developer ecosystems. On the cross-chain front, the launches of Chainlink’s CCIP and Layerzero v2 were also exciting.

While these are just a few of the developments on this front, they are set to bolster multi-chain dApp development with much better UX to help onboard the next wave of DeFi users.

All was not great about this year though. There were several notable security incidents with over $1.3B worth of assets lost, which underscored the importance of robust security measures in DeFi. As for DeFi lending markets, Euler’s flashloan attack was the biggest one, affecting assets worth ~$200M, which were later returned making it one of largest recoveries of stolen assets in blockchain history. Aave also experienced a security scare leading to the pausing of certain markets across Ethereum, Arbitrum, Polygon, Optimism and Avalanche. The GHO reserve was also temporarily paused in a separate incident. Furthermore, the centralised CRV position (460M CRV collateral; $110M in stablecoin borrows) held by Curve’s founder on Aave clubbed with the Vyper exploit resulted in the CRV market being systematically disabled and then re-enabled on the platform. The DAO’s governance responses through these incidents were particularly impressive, with multiple stakeholders stepping in and contributing to an informed decision-making process.

Other major security incidents across the broader ecosystem targeted, Mixin network (~$200M), Polonix exchange (~$126M), Multichain (~$130M) and Atomic wallet (~$1150M), raising concerns about the inherent risks in DeFi and the need for constant vigilance​​​​​​.

All that being said, we are still quite far from supporting a DeFi at the scale of the traditional money markets ecosystem. Some of the most exciting problem statements and opportunities within the DeFi leverage landscape in my opinion are

• cross-chain leverage to solve for fragmented liquidity across networks

• a defensible and privacy-preserving reputation system for borrowers

• a decentralised risk-assessment framework for lending markets across networks

• balancing privacy <> transparency in private lending, and tokenisation of RWAs etc.

(here’s an interesting list)

We at Lucidity have talked about the problem of fragmented liquidity and capital inefficiency in the growing DeFi leverage landscape. Lucidity is being built to stitch together this liquidity and to serve as the playground for tackling some of the open problem statements highlighted above.

The year 2024 is going to be pivotal for the development and adoption of DeFi at scale, and I am excited to see what the future holds for the space as a whole!