Total Value Locked (TVL) in DeFi on Solana and BNB Chain has fallen sharply over the past year. DeFi on other Layer 1 chains like Terra and Fantom has fared much better.

DeFi on alternative Layer 1 networks

TVL in DeFi has been declining over the past few months. According to data from Defi Llama, there is now $209.5 billion in TVLs in DeFis, compared to a peak of $255 billion in December 2021, when the crypto market saw a massive drop in assets.

TVL in DeFi | Source: Defi Llama

Ethereum, the world’s largest smart contract blockchain, holds about $115 billion in digital assets across hundreds of DeFi applications, down 30% from $163 last month.November 2021, when ETH is trading at an all-time high (ATH ). The shift of TVL onto the so-called “Alternative Layer-1” blockchain, which competes for Ethereum’s market share, has made a big difference.

While some networks have seen TVL declines in their DeFi ecosystem over the past few months, others have thrived. Amid tough market conditions, Ethereum remains at the heart of DeFi.

BNB chain and Solana DeFi achieved success

BNB Chain, formerly known as Binance Smart Chain, is believed to be the first alternative Layer 1 network to fiercely compete with Ethereum as it gains momentum in late 2020. In early 2021, the Binance-operated chain gained popularity as gas fees on Ethereum skyrocketed, sending many DeFi enthusiasts fleeing. From January to May 2021, TVL on the BNB chain skyrocketed from $124 million to $31 billion.

However, May 2021 saw a sharp drop in the crypto market. DeFi on the BNB chain is also down nearly 60%, with TVL currently at $12.39 billion.

There are a number of factors that could explain the decline, including BNB Chain’s concentration, lack of innovation, and the large number of attacks on the network. BNB Chain is a clone of Ethereum but much more centralized with only 21 validators. That may have prevented Ethereum DeFi mainstreams like Aave and Curve from being adopted on the network despite the obvious moves toward a multi-chain future. The BNB Chain has also been plagued by numerous hacks and rug pulls that have damaged its reputation as a trusted DeFi ecosystem. However, BNB Chain remains among the top three Layer 1 blockchains in terms of TVL, largely thanks to the large amount of liquidity tied up in apps like PancakeSwap, Venus, Alpaca, and Ellipsis Finance.

Solana has also been hit hard in recent months. Unlike many other Ethereum competitors, Solana is not compatible with the Ethereum Virtual Machine (EVM) that contributed to the 2021 outbreak. However, SOL is now 60% lower than ATH and liquidity is limited. Locks in Solana DeFi have also been declining for several months. TVL on Solana has fallen from a peak of $14.9 billion in December 2021 to $7.31 billion today, down more than 50%. Solana’s flagship DeFi protocols like Sabre, Raydium, and Serum have all seen sharp declines over the past few months.

The Solana ecosystem also experienced a major setback in February when Wormhole, a Solana DeFi bridge to Ethereum and other Layer 1 networks, was hacked for $322 million. The Solana network is also struggling with its own problems caused by repeated spam issues that have caused network congestion many times. Solana said they are working to fix the issue.

While Solana is outperforming most other crypto assets in 2021, recent developments suggest its DeFi ecosystem is lagging behind.

Terra and Fantom explode

While some Layer 1 networks have struggled to maintain TVL in their DeFi ecosystem, others have proven resilient. TVL on Terra is currently at an ATH of $23.51 billion, which is about 11% of the DeFi space. Terra’s DeFi ecosystem has a number of products that differ from those on Ethereum. Its flagship protocol, Anchor, holds the highest value with over $11.5 billion tied up in credit and lending pools. Other big apps like Astroport and Mirror Protocol have attracted users even in a declining market.

While the entire crypto market struggled earlier in the year, January was a good month for DeFi on Fantom. Even as FTM increased in value, TVL grew from $4.9 billion to $12.8 billion on the Fantom network. At the time, much of Fantom’s network value was locked into Daniele Sestagalli’s Abracadabra Finance, a stablecoin and algorithmic lending protocol touted as an innovative “DeFi 2.0” project. Abracadabra suffered when Wonderland, another project built by Sestagalli, faced major controversy after its finance manager was deposed as a former convict. As liquidity from the Abracadbra pools increased, Fantom saw its TVL decline, falling from $12.8 billion to $7 billion in February 2022.

However, February also saw the launch of Solidly, a highly anticipated project by highly respected DeFi builder Andre Cronje. The launch helped restore Fantom’s TVL, which was locked in part thanks to its innovative tokenomics. Solidly is a recovering DeFi protocol that uses a voting escrow system similar to Curve’s. When Cronje announced that only Fantom protocols were eligible for the Solidly token airdrop, network usage skyrocketed. Solidly has raised $2.3 billion worth of money on the network, with big fantom native apps like SpookySwap and Geist benefiting from the launch. TVL on Fantom is currently $11.65 billion, about 7% lower than the previous ATH.

The future for DeFi

Amid the market-wide decline and growing interest in other areas like NFT, active crypto users have long wondered what will happen next for DeFi. Governance tokens for early DeFi projects like Synthetix and Uniswap have hit yearly lows over the past few weeks and are trending lower against Ethereum throughout 2021. Profits are also down for many DeFi protocols as the market fell. However, with the DeFi space still holding hundreds of billions of dollars in liquidity and the tremendous promise of the technology, there is good reason to believe that it will thrive again despite its strong presence on the internet. all major Layer1 networks or just 1-2 ecosystems.

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