Decentralized finance is making a comeback, and the total value locked in the crypto market is expected to hit an all-time high next year, the report said.
Steno said interest rates are the most important factor in influencing DeFi's appeal.
This year's expansion in stablecoin supply and the growth in real-world assets are also tailwinds for the DeFi market, the note said.

Decentralized finance (DeFi) summer is making a comeback, and while total value locked (TVL) in the crypto ecosystem is still well below its 2021 peak, it could climb to an all-time high as soon as the first half of next year, Steno Research said in a report on Friday.

DeFi's imminent resurgence is linked to interest rates, particularly in the U.S., because the decentralized finance market is predominantly U.S. dollar-centric, the report said.

"Interest rates are the most critical factor influencing the appeal of DeFi, as they determine whether investors are more inclined to seek out higher-risk opportunities in decentralized financial markets," analyst Mads Eberhardt wrote.

Steno notes that the first DeFi summer, in 2020, came hot on the heels of Federal Reserve interest-rate cuts in response to the Covid outbreak.

Still, interest rates are not the only driver behind a comeback in DeFi. There are also crypto-native factors at work. The growth in stablecoin supply, which has expanded by about $40 billion since January, is crucial because "stablecoins are the backbone of DeFi protocols," Steno said.

"As interest rates decrease, the opportunity cost of holding stablecoins diminishes, making them more attractive – much like the broader appeal of DeFi in such an environment," Eberhardt wrote.

The continued growth of real-world assets (RWAs) such as tokenized stocks, bonds and commodities is another key factor, and the 50% surge in these assets year-to-date indicates robust demand for on-chain financial products such as DeFi.

Lower fees on the Ethereum network, the blockchain most widely used for DeFi, also makes decentralized finance more accessible, the report added.

DeFi Analysts

Will Canny

Will Canny is an experienced market reporter with a demonstrated history of working in the financial services industry. He's now covering the crypto beat as a finance reporter at CoinDesk. He owns more than $1,000 of SOL.