Liquidity mining reshaped the decentralized finance (DeFi) landscape when Compound launched its "borrow-and-mine" model in June 2020. What began as a novel incentive mechanism quickly sparked a sector-wide frenzy, fueling explosive growth in on-chain activity — and gas fees. At its peak, a single deposit transaction on Curve during August 2020 cost users approximately 0.3 ETH amid gas prices reaching 250 GWEI.
While the initial boom created unsustainable valuations — with many top DeFi tokens shedding up to 90% from their highs — it also laid the foundation for long-term innovation. Today, despite being in a prolonged crypto bear market, the DeFi ecosystem has grown significantly. According to Defi Llama, total value locked (TVL) across DeFi applications reached $128.65 billion by May 31, 2022 — an increase of nearly 116x compared to $1.1 billion just two years prior. Though down 53.7% from its all-time high of $277.98 billion in December 2021, the sector has matured, with leading protocols establishing brand moats and continuously iterating.
Now that the speculative wave has receded, liquidity mining has become more sustainable and strategically deployed. This article examines the current status of 10 pioneering DeFi protocols that helped define the space during its formative years.
Uniswap: Dominance Through Innovation
Uniswap, first launched in November 2018, remains the dominant decentralized exchange (DEX). Its evolution from V1 to V3 showcases relentless innovation:
- V1: Limited to ETH-ERC20 pairs.
- V2: Enabled direct ERC20-to-ERC20 trading.
- V3: Introduced concentrated liquidity and customizable fee tiers.
This latest upgrade boosted Uniswap’s market share to 74%. By allowing liquidity providers (LPs) to concentrate funds around specific price ranges, V3 improves capital efficiency and enables lower trading fees — closing the gap with centralized exchanges like Binance, which typically charge under 0.1%.
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For example, on June 2, 2022, the USDC/ETH pool with a 0.05% fee tier saw nearly nine times more volume than the 0.3% tier over seven days — despite having less liquidity — rewarding LPs with higher fee income.
As of May 31, 2022, Uniswap held $5.97 billion in liquidity — down 43.1% from its peak but still commanding strong volume. Monthly trading volume hit $62.6 billion in May 2022, up 220x from $284 million in May 2020, though off its August 2021 high of $847 billion.
SushiSwap: The Fork That Faded
Launched in August 2020 as a Uniswap fork, SushiSwap attempted a "vampire attack" by offering high-yield liquidity mining incentives — some pools exceeding 1,000% APR — to lure LPs away from Uniswap.
However, after Uniswap launched its own governance token (UNI), SushiSwap lost momentum. Despite expanding to over a dozen chains and adding features like Kashi lending and Miso IDO platform, it lacks a clear competitive edge.
Leadership instability further weakened trust: founder Chef Nomi stepped down in September 2020, followed by lead developer 0xMaki in September 2021.
Today, SushiSwap’s TVL stands at $2.07 billion — down 70.6% from its $7.04 billion peak — and monthly trading volume has plummeted 84.4% year-over-year to $3.93 billion.
Curve: The Stablecoin Powerhouse Adapting to Change
Curve Finance, launched in January 2020, dominates stablecoin swaps. Its design minimizes slippage for pegged assets, making it essential infrastructure for DeFi.
The "Curve War" — competition among protocols like Convex to control CRV emissions — drove demand for CRV staking and intensified liquidity battles for stablecoins. However, rising competition from Uniswap V3’s 0.01% fee tier for stable pairs has challenged Curve’s dominance.
To diversify, Curve partnered with Synthetix to enable cross-asset swaps (e.g., DAI → WBTC via sUSD and sBTC). But limited SNX liquidity constrains large trades.
Curve’s tricrypto2 pool (USDT/WBTC/WETH), with over $470 million in liquidity and a 0.069% fee, offers efficient trading for major assets.
Total cross-chain TVL: $8.93 billion — down 63.3% from its January 2022 high but up ~700x from two years ago.
Bancor: Reinventing AMM Architecture
Bancor pioneered automated market makers (AMMs) with its 2017 whitepaper. Unlike Uniswap, early versions required all tokens to pair with BNT, reducing capital efficiency.
Bancor V2 introduced single-sided liquidity and impermanent loss protection. In May 2022, Bancor 3 launched Omnipool — a unified virtual vault that eliminates the need for BNT as an intermediary, lowering gas costs and optimizing trade routing.
Current TVL: $620 million — down 74.4% from its May 2021 peak.
Synthetix: The OG of Liquidity Mining
Originally Havven, Synthetix pivoted in February 2019 to become a synthetic asset protocol. Andre Cronje once credited Synthetix and founder Kain Warwick with inventing liquidity mining — though they called it an "LP reward system" before the term existed.
Users mint synthetic assets (like sUSD) by over-collateralizing SNX. sUSD supply now totals $98.7 million — up 12.1x from two years ago but down 70% from its August 2021 peak of $329 million.
Yearn Finance: Yield Aggregation Under Pressure
Launched July 2020, Yearn popularized fair token distribution and yield aggregation. It boosts returns by pooling user funds into high-yield strategies across Curve, Aave, and Compound — while saving gas on compounding.
But rising competition from Convex and declining yields have taken a toll. The risk-free rate in core DeFi pools is now near 1%, shrinking Yearn’s appeal.
TVL: $1.19 billion — down 82.8% from its $6.91 billion peak. The protocol has operated at a loss since early 2022 due to falling revenue and fixed operating costs.
MakerDAO: The Decentralized Stablecoin Leader
One of DeFi’s oldest projects, MakerDAO launched single-collateral DAI (backed only by ETH) before upgrading to multi-collateral DAI in November 2019.
Post-March 2020 crash, Maker expanded collateral types and introduced new minting mechanisms:
- Over-collateralization
- Peg Stability Module (PSM)
- Real-world asset backing
- Direct Deposit Module
PSM now accounts for nearly half of DAI supply, enhancing exit liquidity and stability.
DAI remains tightly pegged to $1, even during extreme volatility. Current supply: $6.76 billion — down 34.9% from its February 2022 high but up ~51x from two years ago.
Aave: Multi-Chain Lending Powerhouse
Originally EthLend (funded in 2017), Aave rebranded in 2018 and launched liquidation mechanisms in Q2 2019. Aave V3 enhances cross-chain asset portability and capital efficiency.
Deployed on Polygon, Fantom, Avalanche, Arbitrum, Optimism, and Harmony — though most activity remains on Ethereum, Avalanche, and Polygon via V2.
Total deposits: $125.6 billion (down 60.2% from peak); TVL: $89.6 billion — up 161x from two years ago.
Compound: Innovation Stalls Amid Governance Issues
Launched September 2018, Compound ignited the liquidity mining trend with its June 2020 COMP token launch ("lend-and-mine").
However, lack of innovation and delayed multi-chain rollout (Compound Chain still not live) allowed Aave to pull ahead.
Operational issues hurt credibility:
- November 2020: Oracle glitch caused $80M+ in liquidations due to DAI price spike on Coinbase.
- September 2021: A coding error led to premature release of ~280K COMP tokens (~$80M).
Current stats: $56.2B deposited, $12.9B borrowed, TVL $43.3B. Loan volume down 86.1% from peak. Only ~78 daily depositors and 24 borrowers over past month (Dune Analytics).
dYdX: Decentralized Derivatives Facing Headwinds
Founded July 2017, dYdX offers perpetual contracts, margin trading, and lending. Its StarkEx-powered Layer 2 solution launched in February 2021, enabling scalable trading.
Post-token launch, trading volume surged but has since declined sharply with DYDX price drops.
BTC/USD weekly volume: $1.77B (week ending June 4, 2022), down 89.8% from peak of $17.27B in February 2022.
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Key Takeaways
- Established brands win: Protocols like Uniswap, MakerDAO, and Aave maintain dominance through trust and continuous innovation.
- Innovation is critical: Features like concentrated liquidity (Uniswap V3) or cross-chain efficiency (Aave V3) create lasting advantages.
- Multi-chain is mandatory: Expansion across networks is now essential for growth.
- Growth despite downturn: Even with current declines, core metrics show exponential improvement versus two years ago.
Frequently Asked Questions (FAQ)
Q: What is liquidity mining?
A: Liquidity mining rewards users with tokens for providing liquidity to DeFi protocols. It's used to bootstrap adoption and decentralize governance.
Q: Why did gas fees spike during the DeFi boom?
A: High on-chain activity from yield farming and arbitrage bots congested Ethereum, driving gas prices to record levels — sometimes costing over $100 per transaction.
Q: Is DeFi still growing despite lower TVL?
A: Yes. While TVL is down from peaks, it remains orders of magnitude higher than pre-2020 levels. Infrastructure improvements ensure long-term viability.
Q: Which DeFi protocol has the highest TVL today?
A: As of mid-2022, MakerDAO leads in TVL due to DAI's widespread use, followed closely by Aave and Curve.
Q: Can older DeFi projects stay competitive?
A: Only if they innovate continuously. Uniswap and Aave succeed by launching new versions; others like SushiSwap struggle without clear differentiation.
Q: What’s the future of yield farming?
A: Yields are lower but more sustainable. Projects now focus on real utility and long-term incentives rather than short-term APY chasing.
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