DEFI is a rapidly developing field. It became popular on the Ethereum network in the summer of 2020. During the 2021 bull season, alternative layer 1 blockchains such as BSC, Fantom, Avalanche, and Solana gain market share. Things changed utterly during the bear market. Ethereum has maintained its 57% market share since June 2022, and the developments show that Ethereum can gain even more strength in this area. I want to move on to the latest trends without further ado.
Layer 2s
Layer 2s were developed to solve Ethereum's scaling problem and started to come into effect in 2021. Since these networks, where transaction fees are approximately ten times cheaper than Ethereum, are compatible with the Ethereum Virtual Machine (EVM), DEFI applications have quickly adapted to these networks. Optimistic rollup layer 2s, such as Arbitrum and Optimism, strengthened during the bear season. Last year, zkSync Era, Polygon zkEVM, which uses zero-knowledge proof technology, joined the layer 2 networks. State-of-the-art networks such as Manta, Base, Mantle, Zk Rollups, and Optimistic Rollups have recently brought a new movement to the DEFI world.
Layer 3s
Layer 2 networks such as Optimism and Polygon serve those who want to establish their network on Ethereum and thus benefit from the features of EVM. Optimism calls its Layer 3 product Superchains. Superchains are interconnected, unlike Layer 2 networks. Coinbase exchange produced the Base network using this product, and Base rose to the 12th place in the DEFI networks ranking. Polygon Miden, the product of the Polygon network in this field, promises high speed to users. In this context, Arbitrum Orbit and zkSync Hyperchains should also be mentioned.
Modular Blockchains
Modular blockchain has been blowing in the DEFI space in recent weeks. The token of the Celestia network, one of the essential examples of the modular approach, went on sale in October 2023, and its price has increased six times since then. Layer 2s separated consensus and execution. Modular blockchains create a decentralized data availability layer for Layer 2s. Thus, the data is kept in the data availability layer instead of Ethereum. Therefore, it saves nearly ten times the transaction fees of Layer 2s. Celestia is designed to cater to Ethereum as well as Cosmos and Solana.
Nevertheless, the Manta Network was the first successful example produced using this technology. Manta ranks third among Layer 2s with a TVL of $448 million. Eigenlayer offers another data availability (DA) solution. Eigenlayer DA solution only caters to Ethereum and is optimized for Ethereum.
Restaking
Investors' favorite DEFI categories have changed many times. Lending applications, DEXs, yield farming applications, stablecoins, and liquid staking have become popular and have attracted investor interest. Restaking has become popular recently. Restacking means re-staking liquid staking tokens on DEFI applications. Thus, the same liquidity is used to ensure the security of more than one network. Currently, this process is carried out on Eigenlayer and Manta Network.
Airdrops
The airdrops in the Cosmos ecosystem in 2021 greatly pleased investors. Arbitrum became one of the essential airdrops of 2023. After the bear season ended, airdrops became popular again. Celestia Manta Network, Solana Bonk, and Jito airdrops were especially effective in creating this popularity. Additionally, the Blur airdrop also pleased investors. The airdrop of Eigenlayer, one of the crucial Ethereum ecosystem projects expected to take place this year, has now excites investors. Other networks may also announce various airdrops soon because the airdrop expectation effectively attracts users to new infrastructures.
TL;DR
The first wave in the DEFI field was experienced on Ethereum in 2020 (DEFI summer), and the second wave was experienced in 2022 on Ethereum alternatives such as Solana, BSC, Fantom, and Avanalnche. The third wave will occur again on Ethereum. In 2022, Ethereum had problems such as scaling and high transaction fees. Later, Layer 2s emerged and alleviated these problems. Ethereum's Cancun upgrade will occur in March, and Layer 2 transaction fees will decrease by approximately ten times. Layer 3 blockchains will be highly scalable and interoperable. There is no obstacle to these blockchains being modular or using parallel execution. Layer 3 blockchains will use the Ethereum network for security, Layer 2 networks for interoperability, the data availability layer for data, and their networks for execution.
The innovations I listed above show that DEFI will return much more robust in the coming period.
Thank you for reading.