The market keeps levering up, is the bull market really back?

Is the Bull Market Truly Back? - The Market Continues to Leverage Up

Decentralized Finance (DeFi) is shaking off its lethargy.

According to data from DeFiLlama, in terms of trading volume, DEX has had its best performing week since March, with the Total Value Locked (TVL) reaching its highest level since June. The TVL for the entire DeFi ecosystem has increased from $35.883 billion on October 12th to the current $46.236 billion, an increase of $10.353 billion.

In the past 30 days, the TVL of the top ten DeFi platforms has grown by over 15%, with 6 protocols showing growth of over 25%.

IntoTheBlock data shows that Aave v3 has reached a new all-time high in daily borrowing assets.

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Due to speculation that a Bitcoin ETF in spot market will be approved in January next year, along with expectations of a better (or at least not so pessimistic) macro environment, the enhanced risk appetite of traders is driving DeFi activity. Lucas Outumuro, an analyst at IntoTheBlock, stated in a research report, “As people rush to speculate, the demand for leverage has been growing.”

Record-breaking borrowing volume by Aave

IntoTheBlock data shows that on November 15th, Aave v3 on Ethereum borrowed a record $182 million in assets. The repayment on the same day was $150 million, resulting in a net inflow of $31 million. Despite this, the overall trend indicates a continuous growth in demand for collateralized loans.

Higher yields and TVL

The demand for borrowing is pushing up yields. This week, the borrowing interest rate for USDC on Aave reached 9.2%, while the borrowing interest rate for the protocol reached 7.6%, both the highest levels since August.

Higher yields attract more liquidity, thereby increasing the TVL. According to DeFiLlama data, assets deposited into smart contracts have been steadily increasing since last month, surpassing $47 billion for the first time since May.

DeFi trading activity is also on the rise. According to data from DeFiLlama, DEX trading volume last week was $244 billion, the highest level since the week of March 18th. October was the best performing month for DEX since June, with a trading volume of $61.4 billion.

Impressive performance of DeFi tokens

As traders ramp up their risk bets again, the prices of DeFi tokens are soaring. According to Coingecko, the market capitalization of the DeFi industry is $65 billion, the highest level since May.

In addition, 5 out of the top 10 performing tokens in the past day are DeFi protocols, including dYdX (ethDYDX), LianGuaincakeSwap (CAKE), Joe (JOE), THORChain (RUNE), and Lido DAO.

Looking at the 7-day chart, 4 out of the top 10 performing tokens are also DeFi tokens, with 0x Protocol (ZRX) and Yearn.finance (YFI) joining dYdX (ethDYDX) and THORChain (RUNE) as double-digit-gaining DeFi tokens.

The funding pool for DeFi developers has also expanded. LianGuai previously reported that Arbitrum plans to allocate around $44 million from its treasury to provide short-term incentives for various projects, hoping to promote the development of the network. The second proposal to pay an additional $25 million grant based on current market prices is close to being approved. Polygon also announced its own $78 million funding plan last week.

A Surface Bull Market?

In response to the recent optimism, some community users are cheering, saying “Bulls are back, speed up!” However, David Hoffman, co-founder of Bankless, believes that if this is a bull market, it is very different from previous ones.

In his article, Hoffman stated that there is bullish sentiment due to the imminent launch of spot ETFs. The approval of a Bitcoin spot ETF could happen at any time, and a spot Ethereum ETF is not far behind. This is a moment the industry has been waiting for over a decade, and if the approval of these spot ETFs sparks a bull market, it will be the first time the crypto industry experiences a bull market triggered by external stimuli, but lacking intrinsic catalysts.

Hoffman believes that, firstly, there are no new reasons for people to enter the crypto space in a crypto-native way, and the industry has not unlocked any new primitives. Retail investors don’t care if Polygon or Solana have cheaper block space and improved execution environments. Secondly, no new applications have been built yet.

Rising asset prices themselves are a form of marketing, and the reopening of the casino and people making money for the first time in two years are the driving force for re-entering the market. Hoffman warns that without some new applications or primitives for people to use, like in 2013, 2017, and 2021, this rebound will be short-lived, and a true bull market needs an intrinsic catalyst.

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