Is DeFi Due for a Turnaround? The Sector Has Strong Fundamentals Despite Poor Price Performance This Year

alized finance as a sector has had poor price performance this year, the ecosystem has strong fundamentals, causing some to speculate whether DeFi is due for a turnaround.

While decentralized finance (DeFi) tokens have largely underperformed BTC and ETH throughout 2024, the underlying fundamentals remained strong with resilient DeFi activity.

MakerDAO (CRYPTO: MKR) and JTO, a different governance token for Solana’s leading liquid staking provider Jito, have both appreciated by about 24.8% so far in 2024. Leading the pack was AERO, the native token for Aerodrome, the largest decentralized exchange on Coinbase-incubated L2 Base, which has skyrocketed by almost 1,300%.

On the other hand, LDO, the governance token for the dominant liquid staking provider Lido, has fallen 63.0%, from $2.92 on Jan. 1 to $1.08 at presstime, while CRV, the cryptocurrency that governs popular venue to swap stablecoins Curve Finance, has declined about 50.9%.

Here’s a look at how some of the top DeFi tokens have fared in 2024:

The overall weak price performance of DeFi tokens stems in part from the challenges for the tokenomic models of smart contract protocols. DeFi projects are still fine-tuning their mechanisms for distributing value to token holders.

For instance, MakerDAO is overhauling its ecosystem with its Endgame launch, and is expected to introduce a new stablecoin, governance token, and sub-DAOs among other changes.

Aave also passed a snapshot governance vote ten days ago aimed at creating “a clear path and roadmap related to the protocol ‘fee switch,’” which is intended to increase the utility of Aave’s token by enabling it to collect rewards from the protocol’s revenue.

Meanwhile, the U.S. Securities and Exchange Commission has implied in a lawsuit against Ethereum software provider Consensys that Lido’s flagship product, stETH, is an unregistered security. A different lawsuit, initially filed last year in the US District Court for the Northern District of California, claims the protocol’s governance token, LDO, is also a security that hasn’t been registered with the SEC.

Some have also pointed to the zero-sum relationship between DeFi and the ongoing memecoin frenzy, where resources such as attention and capital are split between the two.

“DeFi bottoming out would require the memecoin cycle coming to an end, which I’m not sure when it’s going to happen,” Paul Vaden, a core contributor for the Lyra Foundation tasked with developing derivatives trading platform Lyra, told Unchained in a text message.

Pump.Fun, a platform that enables people to create and gamble memecoins, is the 8th highest-fee-generating crypto project in the past 30 days, amassing $28.57 million ahead of Aave, Maker, Aerodrome, and Curve Finance, data from DefiLlama shows.

However, according to the Alt Season Index, which tracks the percentage of the top 50 cryptocurrencies that outpaced BTC in the last 90 days, AAVE is the only DeFi token that has performed better.

“Despite the tokens of many DeFi projects underperforming BTC and ETH throughout 2024, the underlying fundamentals remained strong with resilient DeFi activity,” Toe Bautista, Research Analyst at crypto market maker GSR, told Unchained via email.

“For example, Q2 DEX volumes reached $520 billion, outstanding borrows hit yearly highs of $16 billion in July, and the cumulative stablecoin market cap increased 28% year-to-date. Moreover, DeFi has gained market share, with the DEX vs. CEX spot volume ratio hitting an all-time high of 14% in July.” Bautista added.

“DeFi as the sector with the strongest product-market fit in crypto reached [a] 3-year low lately relative to global crypto market cap. I expect this to bottom out over the coming months and make a great comeback as we enter a new interest rate cycle,” wrote CEO and founder of venture firm DeFiance Capital Arthur Cheong on X.

On the other hand, “most DeFi tokens are never going back to all-time highs,” Lyra’s Vaden argued. “I’m not really sure when DeFi will bottom, a lot of it still looks unattractive.”

And yet Vaden and GSR’s Bautista pointed out DeFi’s reflexive behavior. “DeFi metrics are super reflexive,” says Vaden. ”As tokens start going up, metrics (volume/TVL/etc) go up and reinforce the narrative, so [there maybe a strong pump if ETH performs well.” In the same vein, Bautista noted that DeFi’s reflexive behavior suggests a potential upside if prices rebound.

Chris Eberle, a crypto angel investor, told Unchained over Telegram that “If there’s one thing I’ve learned in nearly eight years in crypto, [it’s that]

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