The State of Early DeFi Projects Two Years After Yield Farming's Rise

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The concept of liquidity mining—popularized by Compound in June 2020 with its “lend-to-earn” model—has now been a defining force in decentralized finance (DeFi) for over two years. What began as a novel incentive mechanism quickly ignited a wave of innovation, user growth, and speculative frenzy across the blockchain ecosystem. At its peak, the surge in on-chain activity drove Ethereum gas fees to unsustainable levels: in August 2020, a simple deposit into Curve’s pool cost around 0.3 ETH at a gas price of 250 GWEI.

While the initial hype has cooled and the market has entered a prolonged bear cycle, the overall DeFi landscape has grown exponentially since 2020. According to Defi Llama, total value locked (TVL) across DeFi protocols reached **$128.65 billion** by May 31, 2022—an increase of nearly **116x** from $1.1 billion just two years prior. Though this represents a 53.7% decline from the all-time high of $277.98 billion in December 2021, it underscores the lasting infrastructure built during the yield farming boom.

Today, liquidity mining has matured into a more sustainable practice. Early projects have either evolved or faded, revealing which protocols possess true staying power. Below is an in-depth look at ten pioneering DeFi platforms and how they’ve fared after the initial wave of speculation receded.

Uniswap: Leading the DEX Revolution

Uniswap, launched in November 2018, remains the dominant decentralized exchange (DEX). Its evolution from V1 to Uniswap V3 exemplifies continuous innovation: V1 allowed only ETH-ERC20 pairs; V2 enabled direct ERC20-to-ERC20 swaps; and V3 introduced concentrated liquidity and customizable fee tiers.

In May 2022, Uniswap processed $62.6 billion** in trading volume—up **220x** from $284 million in May 2020, though down 26.1% from its August 2021 peak. Its TVL stood at $5.97 billion**, down 43.1% from its all-time high of $10.5 billion.

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V3’s concentrated liquidity model significantly improved capital efficiency. By allowing liquidity providers (LPs) to set price ranges, Uniswap now competes directly with centralized exchanges on fees. For instance, the USDC/ETH pool offers a 0.05% fee tier—far below the traditional 0.3%. Despite lower liquidity in this tier, it generated nine times more volume than the standard tier over seven days, delivering higher fee earnings for LPs.

This innovation helped Uniswap capture 74% of DEX market share, reinforcing its leadership amid growing competition.

SushiSwap: From Vampire Attack to Struggles for Relevance

SushiSwap emerged in August 2020 as a fork of Uniswap, leveraging a “vampire attack” strategy by offering SUSHI rewards to users who migrated their LP tokens. At its peak, some pools offered APRs exceeding 1,000%, rapidly siphoning liquidity from Uniswap.

However, after Uniswap launched its COMP token, Sushi’s competitive edge eroded. Despite expanding to over a dozen chains and adding features like Kashi lending and Miso launchpad, Sushi has struggled with governance instability and lack of differentiation.

Founder Chef Nomi transferred control in September 2020, and key leader 0xMaki stepped down in 2021. Today, Sushi’s TVL sits at $2.07 billion**, down **70.6%** from its November 2021 high of $7.04 billion. Trading volume has also plummeted—from $25.2 billion in May 2021 to $3.93 billion in May 2022, a drop of 84.4%**.

Without a clear product advantage or stable leadership, Sushi remains an example of how short-term incentives cannot replace long-term strategy.

Curve Finance: Dominating Stablecoin Swaps

Launched in January 2020, Curve dominates stablecoin trading due to its low-slippage, low-fee model optimized for pegged assets. The rise of algorithmic stablecoins and yield competition sparked the “Curve War,” where protocols like Convex incentivized CRV staking to gain voting power over liquidity gauges.

To counter Uniswap V3’s entry into stablecoin markets with 0.01% fees, Curve expanded into cross-asset swaps via integration with Synthetix. For example, swapping DAI for WBTC now routes through sUSD and sBTC—though limited SNX liquidity constrains large trades.

Curve’s tricrypto2 pool—featuring USDT, WBTC, and WETH—has attracted over $470 million, offering efficient trading for major assets at a 0.069% fee.

As of May 2022, Curve’s multi-chain TVL totaled $8.93 billion, down 63.3% from its January peak but up nearly 700x from two years ago.

Bancor: Pioneering AMM with Single-Sided Liquidity

Bancor’s whitepaper debuted in February 2017, introducing the world to automated market makers (AMMs). Unlike early DEXs requiring paired deposits, Bancor introduced single-sided liquidity provision and impermanent loss protection starting with V2.

Historically, all trades routed through BNT as an intermediary token—a design that hurt capital efficiency over time.

Bancor 3, launched in May 2022, overhauled this with the Omnipool architecture, consolidating all liquidity into a single virtual vault. This reduces gas costs and eliminates forced BNT routing.

Despite innovation, TVL has declined to **$620 million**, down 74.4% from its May 2021 high of $2.42 billion.

Synthetix & Yearn: Niche Innovators Facing Headwinds

Synthetix, originally Havven, pivoted to become a synthetic asset protocol. Users mint synthetic assets (like sBTC or sUSD) by over-collateralizing SNX tokens. Though credited by Andre Cronje as an early pioneer of liquidity mining (then called “LP rewards”), Synthetix now faces reduced demand.

sUSD supply stands at 98.7 million, up 12.1x from two years ago but down 70% from its August 2021 high.

Yearn Finance, launched in July 2020, aggregates yield across protocols like Curve and Aave. It once offered superior returns via CRV staking and compounding automation.

But rising competition—from Convex and others—and declining yields have taken a toll. Yearn’s TVL is now $1.19 billion, down 82.8% from its December 2021 peak. With falling revenue but fixed operational costs, Yearn has operated at a loss since early 2022.

MakerDAO & Aave: Stability and Scalability

MakerDAO, creator of DAI—the largest decentralized stablecoin—has evolved beyond ETH-only collateral. It now supports four minting methods: over-collateralization, pegged savings (PSM), real-world assets (RWA), and direct deposits.

DAI circulation is 6.76 billion, up 51x from two years ago despite a 34.9% drop from its February 2022 peak.

Aave, rebranded from EthLend in 2018, leads in lending with V3 enhancing cross-chain efficiency. Deployed on Polygon, Arbitrum, Avalanche, and others, Aave V3 aims to unify liquidity.

Yet most activity remains on V2 across Ethereum, Polygon, and Avalanche: total deposits stand at $12.56 billion, down 60.2% from peak but up 161x from two years ago.

dYdX & Compound: Falling Behind?

dYdX, a decentralized perpetuals exchange built on StarkEx, saw volume soar post-token launch but has since declined sharply: BTC/USD weekly volume dropped from $17.27 billion in February to $1.77 billion in June—a 89.8% fall.

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Compound, despite sparking the liquidity mining era in June 2020, has stagnated due to lack of innovation and delayed multi-chain rollout. Its TVL is $4.33 billion with only 78 daily depositors—highlighting declining engagement.

A past oracle failure caused $80 million in liquidations; another bug led to misallocated COMP worth $80 million.

Core Keywords

Frequently Asked Questions

Q: What is liquidity mining?
A: Liquidity mining involves earning crypto rewards by providing liquidity to DeFi protocols. Users deposit assets into pools and receive tokens as incentives—a model that fueled rapid growth in early DeFi.

Q: Why did early DeFi projects grow so fast?
A: High APYs from governance tokens attracted massive capital inflows. Protocols like Uniswap and Curve used these incentives to bootstrap networks before transitioning to sustainable models.

Q: Is DeFi still growing despite lower TVL?
A: Yes—though current TVL is down from peaks, it remains vastly higher than pre-2020 levels. Infrastructure maturity, multi-chain expansion, and improved UX signal long-term viability.

Q: Which DeFi projects have stood the test of time?
A: Uniswap, MakerDAO, Aave, and Curve have maintained leadership through innovation and strong branding, while forks like SushiSwap have struggled to differentiate.

Q: Can DeFi recover from the bear market?
A: Historical growth suggests resilience. Even with reduced activity, core protocols continue evolving—laying groundwork for the next adoption cycle.

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