After an uncertain year, DeFi has high hopes for 2023

Decentralized finance (DeFi) is defined as any product or service offered by the Web3 world that helps users conduct financial activities such as payments, borrowing, lending, investing, trading and staking. 

Several Web3 use cases, including DeFi, GameFi, SocialFi and nonfungible tokens (NFTs), emerged through the last bullish cycle. DeFi has been the largest market cap activity within Web3, with a peak total value locked (TVL) of over $175 billion at the peak of the 2021 bull market.

DeFi: The primary use case for blockchain?

Things have not been the same since the Bitcoin genesis block was created. Thanks to the rise of Ethereum that followed, DeFi has seen product market fit. Through the previous Bitcoin (BTC) bull market, DeFi TVL rose from $600 million in January 2020 to $180 billion in December 2021. 

The TVL within DeFi has held on to over $39 billion despite the market crisis in 2022. DeFi has democratized access to financial services, as it doesn’t need a centralized organization to onboard users. Apart from the democratization, DeFi has also opened up new models like automated market making.

All these innovative elements have catalyzed the growth of DeFi protocols and applications. This has also helped other adjacent use cases such as NFTs and GameFi to grow. For instance, lending models with “NFTs as collateral” have seen good uptake. Additionally, DeFi-based models and marketplaces for gaming NFTs have emerged, allowing gaming guilds to tap into them.

Despite these interesting developments, DeFi shrank to a mere $39 billion in 2022. Let us see what transpired in 2022 and what we can expect in 2023 for DeFi.

Fall from grace

The year 2022 started with a broader market fall. Within the Web3 ecosystem, Solana’s Wormhole bridge was hacked leading to $310 million worth of crypto assets being stolen. Thanks to a few projects on the Solana ecosystem, they managed to emerge out of this abyss.

However, in March, rumors about the credibility of the Terra ecosystem and its algorithmic stablecoin started to emerge. As the market took a further fall through April and May, the network collapsed leading to a broader market sell-off.

1/ I’ve spent the last few days on the phone calling Terra community members – builders, community members, employees, friends and family, that have been devastated by UST depegging.

I am heartbroken about the pain my invention has brought on all of you.

— Do Kwon (@stablekwon) May 13, 2022

Following the Terra episode,…