The era of "yield farming" began in June 2020 when Compound launched its COMP token distribution model—what many call the spark that ignited the DeFi summer. Two years later, the frenzy has cooled, gas fees are no longer astronomical (at least not consistently), and the market has separated the sustainable projects from the speculative noise.
While the broader crypto market faces a prolonged bear cycle, DeFi as an ecosystem has grown substantially in scale and maturity. According to Defi Llama, Total Value Locked (TVL) in DeFi reached $128.65 billion by May 31, 2022—up from just $1.1 billion two years prior, a staggering 116x increase. Though this is down from the peak of $277.98 billion in December 2021, the foundation for long-term growth appears stronger than ever.
Let’s examine how ten pioneering DeFi protocols have evolved since the height of the liquidity mining craze.
Uniswap: Reinventing DEX Efficiency with V3
Uniswap, launched in November 2018, remains the dominant decentralized exchange (DEX). Its evolution from V1 to V3 reflects a relentless pursuit of capital efficiency and user experience.
- V1 allowed only ETH-ERC20 pairs.
- V2 introduced direct ERC20-ERC20 trading.
- V3, launched in May 2021, revolutionized liquidity provision by allowing concentrated liquidity within custom price ranges.
This innovation enabled fee tiers as low as 0.05%, making Uniswap more competitive with centralized exchanges. As of June 2022, Uniswap captured 74% of DEX market share, up significantly from earlier versions.
Despite declining TVL—from a high of $10.5 billion in December 2021 to $5.97 billion in May 2022—its trading volume remained strong at $62.6 billion for the month, though down 26% from its May 2021 peak. The shift toward concentrated liquidity means less capital is needed to support more volume, signaling a maturing, efficient market.
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SushiSwap: The Fork That Lost Momentum
Launched in August 2020 as a fork of Uniswap, SushiSwap aimed to capture liquidity through "vampire attacks"—offering SUSHI rewards to users who provided liquidity on Uniswap and then migrated it.
At its peak in November 2021, SushiSwap’s TVL hit $7.04 billion. By May 2022, it had dropped to **$2.07 billion**, a 70.6% decline. Monthly trading volume fell from $25.2 billion (May 2021) to $3.93 billion (May 2022).
Though Sushi expanded to over ten chains and added features like Kashi lending and Miso for IDOs, it struggled to establish a unique value proposition post-Uniswap’s token launch. Leadership instability—including the departure of founder Chef Nomi and later 0xMaki—further eroded confidence.
SushiSwap illustrates a hard truth: forks need more than incentives—they need innovation.
Curve: Dominating Stablecoin Swaps Amid the "Curve War"
Curve Finance, launched in January 2020, specializes in low-slippage stablecoin trading. It became central to DeFi’s incentive economy via the so-called "Curve War", where protocols compete for voting power over CRV emissions to boost their own token liquidity.
Key developments:
- tricrypto2 pool holds over $470 million in USDT, WBTC, and WETH, enabling efficient cross-asset swaps.
- Partnerships with Synthetix allow indirect trading of assets like DAI to WBTC via sUSD and sBTC.
- Multi-chain expansion has helped maintain relevance despite rising competition from Uniswap V3’s 0.01% fee tier.
Curve’s TVL stood at **$8.93 billion** in May 2022—down from a high of $24.3 billion but still up nearly 700x from two years prior.
Bancor: Pioneering Single-Sided Liquidity
Bancor, conceptualized in 2017, was the first automated market maker (AMM). It introduced single-sided liquidity and impermanent loss protection—features now common across DeFi.
With Bancor 3, launched in May 2022, the protocol shifted to an Omnipool architecture, eliminating mandatory BNT routing and consolidating liquidity into a single vault. This improves capital efficiency and reduces gas costs.
Despite these innovations, TVL has declined from $2.42 billion in May 2021 to **$620 million** in May 2022—a 74.4% drop—highlighting challenges in regaining market trust after early scalability issues.
Synthetix: The OG of Liquidity Mining
Synthetix predates the term "yield farming." Originally Havven, it pivoted in 2019 to become a synthetic asset protocol where users mint synthetic versions of real-world assets (e.g., stocks, commodities) by staking SNX.
Andre Cronje once credited Synthetix with inventing liquidity mining—though founder Kain Warwick noted inspiration came from Livepeer and Fcoin under what was then called an "LP reward system."
Today, Synthetix supports major synths like sUSD (with ~$98.7 million issued), down from a peak of $329 million but up over 12x from two years ago.
Yearn Finance: Yield Aggregation in a Low-Yield World
Yearn Finance emerged in July 2020 as a yield optimizer, automatically shifting user funds across protocols like Curve and Aave to maximize returns.
Its success relied on high yields from liquidity mining. But as rewards dried up and competitors like Convex emerged, Yearn’s edge faded.
TVL dropped from $6.91 billion (Dec 2021) to **$1.19 billion** (May 2022)—an 82.8% decline. With falling income but fixed operational costs, Yearn has operated at a loss since early 2022.
MakerDAO: The Decentralized Stablecoin Powerhouse
MakerDAO launched DAI in 2017 as a crypto-collateralized stablecoin. After transitioning from single-collateral (SAI) to multi-collateral DAI in 2019, it evolved further with new minting mechanisms:
- Oversized collateralization
- Peg Stability Module (PSM)
- Real-world asset (RWA) backing
- Direct Deposit Module (DDM)
PSM now accounts for nearly half of all DAI supply, enhancing stability during volatility. DAI issuance peaked at $10.38 billion but stood at **$6.76 billion** in May 2022—still up over 50x from two years ago.
MakerDAO exemplifies how decentralization can coexist with financial stability.
Aave: Leading the Lending Race
Originally EthLend, Aave rebranded in 2018 and introduced flash loans and liquidation auctions. Today, it leads in multi-chain lending.
Aave V3, deployed on Polygon, Avalanche, Arbitrum, and others, enhances cross-chain asset portability and capital efficiency.
As of May 2022:
- Total deposits: $12.56 billion (down 60% from peak)
- Borrowings: $3.6 billion
- TVL: $8.96 billion
Despite declines, this represents a 161x growth compared to two years ago.
Compound: Falling Behind Despite Early Leadership
Compound pioneered "lend-to-earn" with its June 2020 COMP emissions. However, lack of innovation and delayed multi-chain rollout (Compound Chain still not live) allowed Aave to pull ahead.
Operational issues hurt trust:
- A May 2021 bug caused $80 million in COMP to be prematurely released.
- Oracle failures triggered mass liquidations during volatility.
As of May 2022:
- Deposits: $5.62 billion
- Borrowings: $1.29 billion
- TVL: $4.33 billion
- Only ~78 daily depositors and 24 borrowers (Dune Analytics)
Loan volume is down 86% from its September 2021 peak.
dYdX: Scaling Perpetuals on StarkEx
dYdX launched in 2017 and gained traction with its Layer 2 perpetual contracts powered by StarkWare’s StarkEx.
After launching DYDX token incentives in August 2021, volumes surged—but have since cooled:
- BTC/USD weekly volume: $177 million (May–June 2022), down **89.8%** from peak ($17.27B).
Despite lower activity, dYdX remains the top decentralized derivatives platform by volume.
Frequently Asked Questions (FAQ)
Q: What was the impact of yield farming on early DeFi projects?
A: Yield farming accelerated adoption by incentivizing liquidity provision. Projects like Uniswap and Curve used it to bootstrap networks quickly—though it also created temporary bubbles and unsustainable APYs.
Q: Why did some forks like SushiSwap fail to maintain momentum?
A: Many forks copied code but lacked long-term vision or governance stability. Without continuous innovation or community trust, they couldn’t compete once initial incentives faded.
Q: How has TVL changed across DeFi since 2020?
A: From ~$1.1B in May 2020 to ~$128.65B in May 2022—an over 116x increase—despite recent pullbacks due to macro conditions.
Q: Is yield farming still relevant today?
A: Yes—but more strategically. Protocols now focus on sustainable reward models tied to utility rather than short-term APY chasing.
Q: Which factors determine long-term success in DeFi?
A: Innovation speed, multi-chain presence, capital efficiency, governance transparency, and resilience during market downturns.
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Final Thoughts
Two years after yield farming took off, the strongest DeFi protocols—Uniswap, MakerDAO, Aave—have proven their staying power through continuous innovation and brand trust.
Forks without differentiation faded; those embracing efficiency upgrades thrived. Multi-chain deployment is now essential for growth.
Even amid declining metrics from all-time highs, DeFi’s infrastructure is deeper, smarter, and more resilient than ever before—setting the stage for broader adoption when market sentiment turns bullish again.
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