The past two years have been influential for Solana’s DeFi ecosystem with the rise of top projects like Serum Protocol, Raydium Protocol , and Mango Markets. With immensely speedy transactions and low fees, Solana may be the frontrunner in expanding into the following stages of DeFi innovation. However, recent exploits and hacks have also sparked insecurities among investors. On that note, ecosystem players must pull through to reinstate the sense of safety and trust in these platforms.
Presently, Solana can count over 70 DeFi protocols with a total value locked (TVL) of $1.98B. The current TVL may seem minuscule if weighted against the peak of $11.56B in November 2021. Nonetheless, current numbers (August 2022) account for a Year-on-Year (YoY) increase of 51.1% ($1.31B in August 2021), and despite recent market turmoils, serves as a testimony for the continued adoption of DeFi on Solana.
In this report, we will dive deeper into Solana’s DeFi ecosystem's trajectory so far, zooming into specific protocols launched this year and the last. This report explores the innovations and uses cases of these protocols, as well as conduct a brief comparison of their investment strategies. The later sections will also address some potential developments we may see shortly in DeFi. Before that, here is a quick primer on Decentralized Finance.
In essence, Decentralized Finance is designed to give users personal autonomy over their assets and how they can deploy them. Instead of depending on centralized institutions, DeFi enables a “peer-to-peer” transaction system where users can send and receive funds without a financial middleman (i.e., banks or brokers).
As it stands, Solana’s current DeFi ecosystem hosts an extensive array of protocols that serve various investment strategies and risk appetites. The initial stages of the ecosystem saw the launch of core infrastructures like Automated Market Makers (AMMs) and Decentralized Exchanges (DEXes), which were aimed at enabling traders to swap and exchange their assets on-chain easily. These protocols laid the foundation for additional use cases like Lending/Staking and Yield Farming, where investors could earn stable returns in exchange for the supply of liquidity. For the risk-seekers, several protocols have also taken the leap toward Options and Derivatives, which opened the doors to more flexibility and leverage. Some recent innovations include the launch of crypto-backed stablecoins that aim to maximize yield and develop a more self-sustainable DeFi ecosystem.
Now that we’ve covered a brief history of the ecosystem, the main question is how have DeFi protocols on Solana evolved over the last two years?
The following sections will highlight specific protocols that have made their mark in 2021 and 2022. We will dive deeper into what use cases these protocols offer, how they are built on top of existing infrastructures, and what risks their strategies come with.
In 2021, we observed that AMMs/DEXes like Raydium took the lead in powering the initial growth of DeFi in Solana. Leveraged Yield Farming (LYF), a developing innovation, also picked up steady traction with the rise of protocols like Apricot Finance. At their peak in November, Raydium and Apricot held TVLs of $2.11B and $314M, taking up 18.2% and 2.7% of the $11.56B DeFi market cap, respectively.