The inception of "liquidity mining" can be traced back to June 2020 when Compound launched its "lending mining" mechanism, catapulting DeFi into the limelight. This innovative approach to distributing tokens and incentivizing participation quickly became a cornerstone of the decentralized finance ecosystem. Over the past two years, the landscape has evolved dramatically, with early protocols facing both unprecedented growth and significant challenges.
While the surge in on-chain activity driven by DeFi led to sustained high gas fees—peaking at around 0.3 ETH per transaction on Curve during August 2020—it also fueled a massive bubble. Many projects saw their valuations redefined, and some early DeFi leaders experienced price drops of up to 90% from their all-time highs. Despite the current crypto bear market, the DeFi sector has expanded enormously compared to two years ago.
According to Defi Llama, the total value locked (TVL) in DeFi applications reached $128.65 billion as of May 31, 2022, a staggering 116x increase from the $1.1 billion recorded on May 31, 2020. However, this represents a 53.7% decline from the peak of $277.98 billion on December 3, 2021. Throughout this period, top DeFi projects have built robust brand moats and continuously innovated to deliver better products.
As liquidity mining matures and becomes more rational, let's explore the current state of ten early DeFi protocols that shaped the industry.
Uniswap: Leading the DEX Revolution
Launched in November 2018, Uniswap has solidified its dominance through continuous innovation. Starting with V1, which only allowed ERC20/ETH trading pairs, it evolved to V2, enabling任意 ERC20 token pairs, and now V3, offering customizable liquidity ranges and fee tiers.
In May 2022, Uniswap's trading volume hit $62.6 billion, a 220x increase from May 2020's $284 million, though down 26.1% from May 2021's peak of $84.7 billion. As of May 31, 2022, its liquidity stood at $5.97 billion, a 43.1% drop from December 2021's $10.5 billion high.
The V3 upgrade boosted Uniswap's market share to 74%. By allowing concentrated liquidity, it reduced fees for traders and increased capital efficiency for liquidity providers. For example, on June 2, the USDC/ETH 0.05% fee pool had lower liquidity but nine times the trading volume of the 0.3% pool, yielding higher returns for providers.
SushiSwap: The Vampire Attack That Faded
SushiSwap emerged in late August 2020 as a fork of Uniswap, attempting a "vampire attack" by luring liquidity providers with high APRs, sometimes exceeding 1000%. However, after Uniswap introduced its token, SushiSwap lost its edge.
Despite expanding to multiple chains and adding features like Kashi lending and Miso IDOs, SushiSwap lacks a core competitive advantage. Leadership changes, including the departure of founder Chef Nomi in September 2020 and anonymous leader 0xMaki in September 2021, have added instability. Its TVL is now $2.07 billion, down 70.6% from November 2021's $7.04 billion, and May 2022 trading volume of $3.93 billion represents an 84.4% drop from May 2021's $25.2 billion.
Curve: Dominating Stablecoin Swaps
Launched in January 2020, Curve dominates the stablecoin swap market. The "Curve War" intensified with Convex's rise and algorithm stablecoins, compelling participants to acquire and stake CRV to influence emissions and attract liquidity.
Uniswap V3 challenged Curve with a 0.01% fee tier, while Curve innovated in cross-asset swaps. Collaborations with Synthetix enabled trades like DAI to WBTC via sUSD and sBTC, though limited by synthetic asset liquidity. Curve's tricrypto2 pool, with $470 million in liquidity, offers low-fee, low-slippage trading for USDT, WBTC, and WETH.
Curve's cross-chain TVL is $8.93 billion, down 63.3% from January 2022's $24.3 billion but up 700x from two years ago.
Bancor: The AMM Pioneer Adapts
Bancor, whitepapered in February 2017, invented liquidity pools and created the first AMM DEX. From V2, it offered single-sided liquidity and impermanent loss protection.
Initially focused on long-tail assets paired with BNT, Bancor resembled Uniswap V1. With Bancor 3's May 2022 launch, it introduced an Omnipool architecture, consolidating liquidity into a single vault to reduce gas costs and improve efficiency. Trades now use optimal paths without mandatory BNT intermediation. TVL is $620 million, down 74.4% from May 2021's $2.42 billion.
Synthetix: Synthetics and Liquidity Mining Origins
Born from stablecoin project Havven, Synthetix rebranded in February 2019. Yearn's Andre Cronje credited Synthetix with "inventing liquidity mining," though founder Kain cited inspiration from Livepeer and Fcoin.
Synthetix mints synthetic assets via SNX overcollateralization, including cryptocurrencies, indices, and stocks. Its stablecoin sUSD has a supply of 98.7 million, up 12.1x from two years ago but down 70% from August 2021's 329 million high.
Yearn: Yield Aggregation and Challenges
Launched in July 2020, Yearn pioneered fair token distribution and yield aggregation. By pooling user funds for liquidity mining on platforms like Curve, it offered higher yields through compounded returns and reduced gas fees.
However, competitors like Convex and declining farming yields have shrunk Yearn's market. The DeFi "risk-free" rate—from Curve 3pool, Aave, and Compound—has fallen to around 1%. Yearn's TVL is $1.19 billion, down 82.8% from December 2021's $6.91 billion, and operational costs have led to recent losses.
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MakerDAO: The Decentralized Stablecoin Leader
One of the earliest DeFi projects, MakerDAO initially launched single-collateral SAI (ETH-only) before transitioning to multi-collateral DAI in November 2019.
Post-March 2020 crash, it expanded collateral types. DAI is now minted via overcollateralization, Peg Stability Module, real-world assets, and direct deposits. The PSM accounts for nearly half of DAI supply, enhancing liquidity and stability.
DAI, the largest decentralized stablecoin, has a supply of 6.76 billion, down 34.9% from February 2022's 10.38 billion but up 51x from two years ago. It maintains a soft peg to $1, with minimal deviations except during extreme events.
Aave: Multi-Chain Lending Expansion
Originally EthLend, Aave rebranded in 2018 and has undergone multiple upgrades. Aave V3 improves cross-chain liquidity and capital efficiency, deployed on Polygon, Fantom, Avalanche, Arbitrum, Optimism, and Harmony.
However, most activity remains on Aave V2 on Ethereum, Avalanche, and Polygon. V3 TVL is under $100 million per chain. Total V2 deposits are $12.56 billion, with borrows at $3.6 billion and TVL of $8.96 billion. Deposits are down 60.2% from October 2021's $31.59 billion but up 161x from two years ago.
Compound: The Liquidity Mining Catalyst
Launched in September 2018, Compound is a DeFi pioneer. Its June 2020 token distribution via "lending mining" ignited the liquidity mining trend.
But Compound has lagged in innovation and multi-chain expansion, with Compound Chain still unreleased. It has also faced issues, like a November 2020 oracle flaw causing $80 million in liquidations and a September 2021 bug misdistributing 280,000 COMP ($80 million).
Current deposits are $5.62 billion, with borrows at $1.29 billion and TVL of $4.33 billion. Borrowing is down 86.1% from September 2021's $9.31 billion peak. Dune Analytics data shows low user engagement, with only 78 daily depositors and 24 borrowers on average over 30 days.
dYdX: Perpetuals and Trading Incentives
Founded in July 2017, dYdX offers perpetuals, margin trading, and lending. Its February 2021 launch of perpetuals on StarkEx fueled growth, boosted by liquidity mining.
However, declining DYDX token prices correlate with reduced volumes. For example, weekly BTC/USD volume was $1.77 billion in late May 2022, down 89.8% from February 2022's $17.27 billion peak.
Key Takeaways and Future Outlook
Successful DeFi projects like Uniswap, MakerDAO, and Aave have built enduring brand moats, fending off competitors through years of development.
Continuous innovation—such as Uniswap's V3 and Curve's cross-asset swaps—enhances competitiveness. Multi-chain expansion is crucial for growth.
Despite recent TVL and volume declines, the DeFi ecosystem has grown exponentially compared to two years ago, demonstrating resilience and long-term potential.
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Frequently Asked Questions
What is liquidity mining?
Liquidity mining involves users providing assets to DeFi protocols in exchange for token rewards. It incentivizes participation and helps bootstrap liquidity for new projects, though rewards often decrease over time.
How has Uniswap maintained its lead?
Uniswap's consistent innovation, from V1 to V3, has kept it ahead. Features like concentrated liquidity and multiple fee tiers improve capital efficiency and user experience, solidifying its market share.
Why did SushiSwap decline?
SushiSwap initially attracted users with high yields but struggled after Uniswap's token launch. Leadership instability and a lack of unique features hindered its ability to compete long-term.
What is the Curve War?
The Curve War refers to competition among protocols to acquire and lock CRV tokens, influencing liquidity incentives on Curve. This helps projects attract liquidity for their stablecoins or other assets.
How does MakerDAO keep DAI stable?
MakerDAO uses overcollateralization, a Peg Stability Module, and real-world assets to mint DAI. Its multi-faceted approach maintains the peg through liquidity mechanisms and arbitrage opportunities.
Is DeFi still growing?
While TVL has dropped from late 2021 peaks, DeFi has expanded significantly compared to 2020. Innovation and multi-chain adoption continue to drive development, suggesting long-term growth potential.