Will TON serve as the leading L1 for DeFi Summer 2.0?

DeFi has revolutionized the way we think about financial services by providing decentralized alternatives to traditional financial systems. DeFi encompasses a wide range of financial activities including lending, borrowing, trading, staking, and more, all without the need for intermediaries like banks. With the DeFi ecosystem growing rapidly, new blockchains are emerging as potential leaders in this space. Among these, The Open Network (TON) stands out as a promising contender with significant potential. This article delves into the factors that could catalyze such a phenomenon on TON.

Understanding DeFi: Top Categories by Total Value Locked (TVL)

Total Value Locked (TVL) is a crucial metric in the DeFi space, representing the total capital held within DeFi protocols. As of July 13, the total DeFi value stands over $143 billion USD. This capital is distributed across various DeFi categories:

1. Liquidity Staking: 34% - Liquidity staking involves users staking their assets to provide liquidity to DeFi protocols, earning rewards in return. This process enhances the liquidity and efficiency of the DeFi ecosystem. Prominent liquidity staking platforms include Lido and Rocket Pool.
2. Lending: 21% - DeFi lending platforms allow users to lend and borrow cryptocurrencies directly from one another, using smart contracts to automate the process. Prominent platforms include Aave, Compound, and MakerDAO.
3. Decentralized Exchanges (DEXs): 13% - DEXs facilitate peer-to-peer trading of cryptocurrencies without the need for a centralized authority. Examples include Uniswap, Sushiswap, and PancakeSwap.
4. Staking: 12% - Staking involves locking up cryptocurrencies in a blockchain to support network operations and earn rewards. Liquid staking protocols have gained popularity for allowing users to stake tokens without locking them up. Examples include traditional staking on networks like Ethereum 2.0 and Cardano.
5. Collateralized Debt Position (CDP): 6% - CDPs involve locking up collateral to borrow stablecoins or other assets. MakerDAO’s DAI stablecoin is a well-known example of a CDP-based system.
6. Other: 14% - This category includes various other DeFi applications such as insurance, asset management, and synthetic assets.

DeFi Summer 2020: A Milestone in Crypto

Historical Context: The original DeFi Summer of 2020 was marked by a surge in DeFi activities, driven by innovative products like liquidity pools, yield farming, and governance tokens. Ethereum was the dominant platform, hosting nearly all popular DeFi protocols and witnessing a significant increase in Total Value Locked (TVL). This period was characterized by high yields paid in novel governance tokens, attracting a wave of early adopters and speculators.

Current DeFi Landscape

The comparison between the DeFi Summer of 2020 and the current state in 2024 reveals significant growth and diversification in the DeFi space. Total TVL across all chains has increased from $1 billion in 2020 to $100 billion in May 2024. While Ethereum’s dominance has decreased from over 95% to 60%, there has been a rise in multi-chain DeFi ecosystems, with platforms like TON gaining prominence. Unlike the inflationary dynamics of past cycles, the current rise in yields is driven by more sustainable and organic demand. Stablecoin and ETH yields are sourced from interest paid by overcollateralized borrowers, reflecting genuine market demand rather than speculative bubbles. This shift presents an opportunity for TON to capture a larger market share as users and developers seek alternative networks for DeFi activities.

Why TON is Poised for a DeFi Summer

Unprecedented Growth Amidst Market Decline

In recent weeks, Toncoin has seen a spike in activity across its DeFi ecosystem. Despite a general downturn in the cryptocurrency market, TON’s TVL has risen significantly. On July 13, 2024, the network’s TVL surged to an all-time high of $745.57 million, representing over 50x increase since the beginning of the year. This growth underscores TON’s resilience and ability to attract and retain value, even when other assets are struggling.

DEX Performance and Trading Volumes TON-based DEXs have seen significant activity, with daily trading volumes reaching $239.04 million on July 13, 2024. This increase is largely due to the popularity of tokens on the TON blockchain, known as jettons, and the memecoin hype that has driven trading volumes. For example, the introduction of Notcoin, a previously untradable memecoin, attracted 35 million active users within a few months of its launch.

Incentive Programs: The launch of The Open League, which rewards users for interacting with TON projects, has further boosted user engagement and DeFi activity. The program features farming pools with boosted APYs and a competition with a Toncoin prize pool, rewarding TON-based projects with the strongest performance. This initiative has resulted in a more than 9X increase in TVL on TON with significant contributions from both DEXs over the course of the program’s first three seasons.

Cost Efficiency and Technological Advancements Recent fee reductions have made TON even more cost-effective. Starting April 16th, transactions involving the USDt stablecoin enjoy significant discounts, with fees for the first transaction reduced to 0.02 TON from 0.032 TON, and subsequent transactions costing 0.0145 TON. Additionally, validators approved a proposal for a further 2.5x reduction in transaction fees. These cost reductions enhance the attractiveness of TON network for stablecoin users, encouraging more frequent and cost-effective transactions within the DeFi ecosystem.

Liquid Staking: Dominant Sector by TVL Liquid staking remains the dominant sector by TVL in TON’s DeFi ecosystem. Protocols like Tonstakers and new entrants like Stakee and Whale Liquid offer high APYs and secure transactions, attracting more Toncoin holders. As of now, liquid staking accounts for a significant portion of TON’s TVL, with innovative protocols continuously emerging to meet the growing demand.

Lending Protocols: Enhanced Liquidity and Capital Efficiency The launch of lending protocols like EVAA Protocol has further expanded TON’s DeFi capabilities. EVAA Protocol, which went live on TON Mainnet, features $26.10 million in total supply and $12.03 million in total borrow. The protocol offers users the opportunity to lend or borrow tokens such as TON, stTON, tsTON, jUSDC, and jUSDT, enhancing liquidity and capital efficiency within the ecosystem.

Oracles: Reliable Data Feeds and Secure Smart Contracts The introduction of oracles by RedStone marks a significant milestone for TON’s DeFi infrastructure. Oracles provide reliable data feeds, essential for the operation of secure smart contracts. RedStone, the first oracle available on TON, ensures high data integrity and enables complex DeFi applications to function seamlessly.

Future Outlook: The Potential for a DeFi Summer on TON

Jettons and DeFi Infrastructure Jettons on the TON blockchain represent a diverse spectrum of digital assets, driving demand for robust DeFi infrastructure. As the DeFi landscape on TON becomes increasingly complex, the need for reliable and secure oracle services will grow.

Sustainable and Organic Growth With the combination of high transaction throughput, low fees, and innovative incentive programs, TON is well-positioned for sustainable and organic growth. The current trends and developments within the TON ecosystem suggest that a DeFi Summer on TON is not only possible but imminent. The broad user base provided by Telegram, coupled with TON’s robust and efficient infrastructure, creates an ideal environment for explosive growth and innovation in DeFi activities. As more people recognize the benefits of decentralized platforms, TON is set to become a major player in the DeFi space, ushering in its own “DeFi Summer”!