Several DeFi protocols have experienced new highs this week as the total value locked (TVL) in DeFi applications crossed the $100 billion mark on multiple blockchains. This substaintial increase comes as cross-chain solutions are enhancing, providing efficient traveling of value and engaging with subjects across different blockchains. DeFi has seen growing popularity during the second half of 2020, with most of the activity taking place on Ethereum, BSC, and novel Layer 1 solutions such as Solana and Avalanche.

Lending and borrowing-based platforms are the ones that are coming to the forefront in this DeFi revival with menacing use activity and locked assets. Aave, one of the largest decentralized finance protocols, has seen its total value locked reach $20 billion as users flock to tap into the juicy yields and extend across-chain functionality. The fact that the protocol has only been integrated recently with Layer 2 scaling solutions has only added to its utilization to enable more minimal transaction fees and faster settle times.

DEXs have also received increased trading volume, and daily volumes of Uniswap, PancakeSwap and others above $5 billion. These platforms have always gained traction from both the retail and institutional investors due to enhanced liquidity and improved interoperability between the chains. Also, the emergence of decentralized derivatives platforms provides new prospects for trading when exposed to more various kinds of assets and instruments.

The DeFi usage has seen a further acceleration with the use of cross-chain bridges and interoperability solutions. Parachains of Polkadot, Inter-Blockchain Communication (IBC) from Cosmos, and LayerZero have allowed for seamless linking of blockchains for asset and data exchange. The above increases in compatibility have not only made the application more user-friendly but have also encouraged innovation because they enable developers to work on the various blockchains’ strengths.

As DeFi progresses forward, yield farming and liquidity mining approaches have grown to be much more complex. New protocols which introduced Thi-Yield mechanisms and Auto-compounding are prominent among users who want to earn as much profit as possible. New generations decentralized finance products have enticed a whole new breed of actors to the space such as Wall Street quants and traders.

That is why the rapid development of the DeFi sector is also concerning to regulators around the world. Some legislative authorities have sought to introduce legislation to govern DeFi as a budding industry. In contrast, others see the dangers of decentralized financial services as a risk to financial institutional establishments. Such talks are definitely very continuous regarding the further prospects of the DeFi area, as well as its interaction with the conventional monetary network.

However, the 2021 picture for DeFi still has critical issues, such as smart contract weaknesses and the danger of hacking attacks. Several heists and hacks within recent months have pointed out that it is high time for better security measures in audits. In response, many DeFi projects have raised their security standards and introduced some extra layers of protection and bug bounty programs.

As the DeFi ecosystem grows, more innovation is expected as IT experts in the industry carry out research and find out more information. This has led to the adoption of more actual assets in the DeFi space, more optimal approaches to inter and intra-chain integrations, and possibly the entry of institutional players into the DeFi sphere as a result of developments in the given fronts, hence contributing significantly to the next phase of DeFi growth. As the gap between CeFi and DeFi is closing, the next few months may hold interesting advancements and additional ways for users and investors of decentralized finance.