Analysis
DeFi Summer 2.0: Is Something Brewing?
Many DeFi tokens like $UNI, $AAVE, and $HYPE were pumping.
But then Israel carried out airstrikes on Iran. It increased geopolitical tensions and created a risk-off sentiment. Obviously, stonks and our bags saw red.
Is the rally dead forever, then?
Well... If the geopolitical situation stabilizes, there's potential for a DeFi Summer 2.0.
(The original DeFi summer happened in 2020 where yield farming and the O.G. DeFi protocols saw explosive growth. Crazy combination of innovations mixed with Ponzinomics)
Lemme go through some catalysts. What's going on?
#1. Onchain Data
If there's a resurgence in DeFi & onchain applications, it should be visible onchain.
- In early April, DeFi TVL was only ~$85B. Now, it's at ~$111B. That's a 30% increase.
- While total DEX volume only did $245B in April, it has done $406B in May alone. And in June, it's already done ~171B. That's a significant increase.
- Daily active addresses tell a similar story. ETH L1 & L2s increased daily active addresses from 1.5M in early April to ~3M on June 3rd. Solana has a similar story as well.
This is reflected in price as well. In May, DeFi tokens outperformed all other major sectors with a 19.0% gain. Even Bitcoin only pumped 11.1%.
#2. Ethereum breakout.
This cycle wasn't kind to $ETH. While everyone put new ATHs, it never touched. And it's still down ~50% from All Time Highs.
But the situation is changing now.
- From the $1.5k low in April, $ETH has pumped to the current $2.5k. It has even started outperforming Solana.
- Since May 16th, ETH ETFs have never had a negative outflow day. Even overtaking BTC's net flow on some days. It means TradFi is bullish on ETH.
- The onchain metrics are trending upwards. You can view Ethereum's TVL, Active Addresses, DEX Volume, etc. here.
- $SBET is replicating Saylor's Treasury Asset strategy for Ethereum. ETH's onchain yield might make $SBET more attractive for TradFi.
Historically, ETH outperformance is good for Altcoins. But due to reasons like too many tokens, we won't get a market-wide altcoin rally.
But we're getting a DeFi narrative. This is partly cuz the majority of DeFi projects and tokens are still in the ETH ecosystem.
I've discussed plausible reasons for this breakout and won't repeat them. But if you want a good ETH Bull case, this report from Etherealize is good.
Now there's a caveat: if we look at the ETH/BTC chart, the breakout isn't confirmed. We need that confirmation for the ETH/DeFi season.
#3. Regulators are pro-crypto
The last US administration was explicitly anti-crypto.
This had stopped devs from working on legit cashflow tokens that can be attacked as securities. Instead, everyone is launching the "harmless memecoins".
Thankfully, the Trump administration changed that. Right now, there is tangible progress in a pro-crypto regulatory environment.
- The GENIUS Act is creating a regulatory framework for stablecoins. It's progressed to a final Senate floor vote.
- The CLARITY Act clarifies which digital assets are regulated as securities (SEC) vs. commodities (CFTC). It has passed House committees and is pending a full House floor vote.
Even the communication from regulators is encouraging for devs who build "fundamental" products in crypto. For example, SEC Chair Atkins talked about an "innovation exemption" for decentralized finance projects.
Even outside of the US, the situation is improving. Korea's newly elected president is very pro-crypto. He's fast-tracking the regulatory situation there.
Reasonable regulators who encourage innovation and take down scammers are good for "fundamental" sectors like DeFi.
#4. $CRCL & Stablecoin Mania
Stablecoins are the most successful crypto sector.
Just look at the stablecoin market cap. It's pretty much a straight growth chart. It'll be hard to find any other chart like this in crypto.
Circle is the issuer of USDC, the second-largest stablecoin. So when it IPOed and pumped from ~$7B to ~$23B, the potential of DeFi became mainstream.
One effect was stablecoin mania. All the announcements below came in the last weeks.
- French banking giant SocGen launches USD-pegged stablecoin
- Plasma, a Tether-supported L1 for stablecoin, attracted $1B deposit easily.
- Stripe acquired Privy, a crypto wallet infrastructure company for many apps. They'd previously acquired
Even more importantly, it's causing people to re-rate DeFi tokens.
If $CRCL is trading at $23B in TradFi market, why is SKY trading at $1.2B onchain? Isn't AAVE undervalued at $4.5B? And so on.
People are rating DeFi tokens higher.
Some Strategies
Once the risk-off sentiment changes, DeFi tokens will continue to pump. The best option is to accumulate long-term projects that'll do well in the sentiment reversal. There are many options to choose from.
- If you want a lending play, Aave TVL is growing. It's putting new ATHs in DeFi TVL dominance. Kamino is a good option as well. When we compare the metrics of both protocols, Kamino looks undervalued.
- You can choose $FRAX as a stablecoin play for the GENIUS Act Catalyst. The OG stablecoin project, Maker, aka $SKY, is also fine. It has upcoming catalysts like the Spark token launch.
- Recently, we published a deep dive on Maple Finance ($SYRUP) for our TDE Pro members. Obviously, this article doesn't have the space to explore that project here.
Ultimately, you'll have to choose yourself after doing your research into them. I'd recommend picking a few (the lower the better) projects and closely monitoring them rather than spreading out your bets.
Sponsored by FAIR Blockchain
FAIR Blockchain: The Only L1 That Kills MEV
Imagine you're buying a concert ticket. Just as you're about to pay, someone jumps ahead, buys it, and immediately resells it to you at a higher price.
Annoying, right?
That's exactly what happens every day in crypto. It's called Maximum Extractable Value, or MEV.
MEV refers to the profit that validators or bots can extract by reordering, inserting, or manipulating transactions within a block. It's not a bug. It's baked into how blockchains work today.
And that's a big problem. FAIR Blockchain is solving that problem. But before we get into it, lemme explain the MEV problem.
Why does MEV exist in the first place?
On most blockchains, when you submit a transaction, it's public. Your swap. Your mint. Your bid. All visible to everyone—before it gets finalized onchain.
This gives bots and validators time to act on that information. They can see what you're doing, and if there's money to be made, they'll jump in ahead of you. This is called frontrunning.
It's the default. And it's unstoppable on most chains. And it's costing users billions.
Here's an example of MEV when swapping 1 ETH for USDC on Uniswap, where the initial price is 3000 USDC.
- Bot frontruns you: It sends a transaction to buy USDC with ETH, just like you, but it pays a slightly higher gas fee to get ahead of you in the block.
- This drives up the price of USDC in the pool (because now there's less USDC left and more ETH).
- Your transaction executes right after theirs, but now the price has changed. You get fewer USDC for your ETH.
- Then the bot sells back its USDC in a third transaction, restoring the pool to its original state and pocketing the price difference.
So on current blockchains, users are constantly losing money to MEV bots & validators are taking it.
For casual investors, this might not seem like a big deal. After all, we're paying some fees on most platforms. And when you're chasing 100x on the next meme coin on Pump.fun, losing a few bucks to MEV bots won't hurt.
But if you're making dozens of trades a day? Or managing a big portfolio? MEV becomes death by a thousand cuts.
That's partly why big market makers don't operate onchain. They don't like losing money.
Do you know who else is like that? AI Agents.
They're going to trade a lot in the future. And MEV will drain their profits. No rational agent would prefer a chain where it's being picked apart every time it moves.
Agents are coming onchain. And they need a chain without MEV.
Enter FAIR Blockchain. It's the first L1 blockchain that removes MEV entirely using BITE (Blockchain Integrated Threshold Encryption).
Remember how MEV exists because transactions are public before they're finalized? BITE removes that problem.
When you submit a transaction on FAIR, it's encrypted. Nobody—not even validators—can read or reorder it. It is decrypted for execution only after the block is finalized. By then, it'll be too late for frontrunning or sandwich attacks.
Here's a transaction flow diagram for the more technically minded people:
Your transaction is safe. It can't be front-run. It can't be censored. It can't be used against you.
But that's not the only benefit. FAIR EVM is a next-generation execution environment that's fully compatible with the Ethereum Virtual Machine. It keeps everything developers love about the EVM—while upgrading it with BITE's encrypted mempools, MEV resistance, and faster finality. Other standout features of FAIR MEV include:
- Parallel execution
- Asynchronous processing
- Database-level efficiency.
- Supports complex computation flows without sacrificing determinism or composability.
So, FAIR is changing the L1 landscape.
It's built by SKALE Labs, the same team behind SKALE, a network of blockchains with zero-gas fees.
If you're curious about the tech behind it, you can dive into SKALE's docs here. Here's the relevant bit: it has something called "SKALE Manager", ~35 smart contracts deployed on Ethereum.
This relationship is causing SKALE to leak value to Ethereum. FAIR Blockchain will allow $SKL to recapture that value.
The SKALE Manager will ultimately be migrated to FAIR. SKALE Chains can also upgrade to the FAIR SDK, which will enable all the sweet features I described earlier, like encrypted execution and zero-MEV.
In return, FAIR will get SKALE Network applications for liquidity, trading, and DeFi activities. It's a win-win relationship.
So, this will become a single ecosystem with two tokens.
- $FAIR will be the native token of the L1 Blockchain.
- To operate FAIR Validator nodes, they'll have to burn $SKL. Additionally, ~10% of $FAIR will be airdropped to $SKL holders.
This ecosystem is offering something no other L1 is offering: complete removal of MEV.
FAIR enables DeFi applications that were previously infeasible—index assets with automated rebalancing, onchain CLOBs, and more.
The sky is the limit. There'll be AI Agents that execute encrypted strategies in real-time without revealing their logic. If you're excited, learn more about FAIR Blockchain below.
🚀 DeFi Catalysts
Polygon is making many changes. Sandeep is back as the foundation's CEO, scrapped the zkEVM chain, GigaGas roadmap for PoS chain, and more.
Morpho introduced v2 of their lending platform. It's an intent-based lending platform powered by fixed-rate, fixed-term loans
Plasma Chain increased the deposit cap by $500M to $1B. While some complain about diluting earlier depositors, it has already been filled.
DefiLlama has released the "App Fees" metric. It's defined as the sum of fees paid by users when using applications on a chain.
Defi.app launched the $HOME token. It's introduced as the token that powers the "everything app" in crypto.
TOOL came out of stealth. Trustless Orderflow Operations Layer is a private company that aims to improve the ETH L1 experience.
📰 Industry News
Stripe, the fintech giant, is acquiring Privy, the wallet infrastructure that powers embedded & social wallets for many popular applications.
South Korea's newly elected pro-crypto president Lee Jae-Myung is pushing for pro-crypto legislation, like legalizing stablecoins.
Shopify will allow shops to accept USDC on Base. Users can now pay with USDC. There'll be a 1% payback as well.
Coinbase made many announcements. Soon, they'll allow users to trade tokens on Base directly from the Coinbase App.
🐦⬛ X Hits
- Etherealize thesis on $ETH.
- Investing as an art of reduction.
- Value proposition of RISE Chain.
- Does the DCF method work for L1 valuations?
- Is $ETH a better treasury asset than BTC?
😂 Meme
Until next time,
Edgy
Today's email was written by Edgy and Yayya.
DISCLAIMER: I'm NOT a financial advisor. This content is for education and information purposes only. Crypto and DeFi are risky and speculative. Please do your research before investing.
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