DeFi Valuation Trends

Key Insights

• Stablecoins, free from the need to compensate LPs, have witnessed an upsurge in market cap due to their high ROA, constant demand, and the structural advantage of not paying out additional fees. Moreover, the revenue multiples for stablecoin protocols have been trending downward as RWA-driven growth has outstripped valuation growth over the past 10 months.
• DEXs saw a decrease in market cap in 2023, dropping from $6.7 billion to $6.02 billion, and Uniswap continues to envelop market share and utility.
• Liquid staking, though having a lower fee generation, still offers substantial returns in part to its vast capital pool, while perpetuals capture high revenues and volumes relative to TVL, a result of their enhanced capital efficiency.

While DeFi activity has been relatively muted it remains one of the most heavily invested sectors in all of crypto. The aggregated DeFi market cap ($24.49 billion) is up 4.8% on the year and continues to make up nearly 20.4% of the combined application crypto marketcap (excluding networks and stablecoins). 

However, within DeFi the performance of the various sub sectors such as DEXs and Lending hasn’t been as uniformly distributed and the variations in performance alludes to the varying levels of market maturity and opportunity. Calculating economic metrics such as TVL, DAU, and earnings against circulating market caps normalizes this performance, and serves as a measuring stick for how the market is pricing in current and future activity.

Sector Valuation Trends

As the largest sector by TVL and one with strong liquidity network effects, the Liquid Staking sector overtook the second largest portion of the DeFi market cap.