The Ethereum-dominated DeFi sector has been growing by leaps and bounds, and according to data from Defillama, the total value locked (TVL) in the sector has once again reclaimed 2022 highs.
The surge coincides with what Kobeissi analysts are calling the “LARGEST short squeezes in crypto history” as ETH continues to inch closer to all-time high levels.
Source: Defillama
DeFi finally recovers from the market crash of 2022
The DeFi sector faced significant challenges in 2022 that have held it down until this year. There was a whopping $3.6 billion lost to hacks, compounded by the market crash that followed the collapse of FTX and Terra Luna, crypto behemoths at the time.
While activity continued, the total value locked (TVL) fell drastically. However, DeFi TVL is now reclaiming highs from 2022.
DeFi lending has also seen significant growth. Open borrows have crossed the $19 billion mark by Q4 2024 and active loans have also recovered, particularly on chains like Aave and Ethereum.
On Ethereum, loans peaked at $22.6–$24 billion this year, with over $35 billion in collateral locked, which analysts have taken as a sign of renewed investor confidence.
Some important factors encouraging the sector’s recovery include increased maturity of the crypto market, growing popularity of decentralized exchanges and lending protocols, and the emergence of liquid staking platforms.
Furthermore, investors see the US’ loose monetary policy and potential interest rate cuts as positive catalysts for the broader crypto and DeFi markets.
Ethereum is leading the DeFi charge
Ethereum is currently dominating the DeFi sector, hosting over 60% of DeFi assets and more than half of all stablecoins.
Source: Defillama
Ethereum’s market cap has increased by over $150 billion since July 1, days after net short exposure hit record highs.
The total DeFi TVL on the chain is currently above $80 billion, leagues above Solana’s $9 billion and Bitcoin’s $7 billion.
Kobeissi Letter’s report attributed ETH’s recent surge to various factors. It pointed out how net leverage shorts on the chain hit a record high in July, with net short exposure 25% above levels seen in February 2025, and implied that it caused Ethereum’s price to surge by +70% in less than one month.
President Trump’s World Liberty Financial has also been buying ETH, with its most recent transaction, based on transaction logs, a $5 million purchase.
Ethereum has also gained significant appeal as a corporate treasury asset, with firms like BitMine and Sharplink Gaming setting the standard, aiming to become the Strategy of Ethereum.
Ethereum-linked ETFs have been raking in funds too. According to analysts, all of these have added “fuel to the already raging short-squeeze fire,” and much of the shorts were institutional capital.
It also says that if ETH rises another 10%, another $1 billion of shorts will be liquidated, which could push Ethereum to $4,000 soon.
President Trump is also expected to sign an executive order soon, which will allow 401(k) retirement plans to invest in crypto in what has been touted as one of the most bullish developments in crypto history.
