DeFi’s Explosive Growth One Year After the Liquidity Mining Boom

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The summer of 2020—often referred to as "DeFi Summer"—marked a pivotal moment in the evolution of decentralized finance. Fueled by the rise of liquidity mining and yield farming, the DeFi ecosystem experienced unprecedented growth, drawing global attention and onboarding millions of new users. One year later, it's time to reflect on how far DeFi has come, what key metrics reveal about its expansion, and what lies ahead for this rapidly evolving space.

The Origins of Liquidity Mining

While the term liquidity mining is now synonymous with DeFi growth, its roots trace back earlier than most assume—and not from the projects you might expect.

Who Coined the Term?

The phrase "liquidity mining" was first introduced by Hummingbot, an open-source automated trading tool, in a blog post published on November 1, 2019. At the time, Hummingbot used the term to describe incentivizing market makers who provided liquidity to exchanges via algorithmic bots.

In their own words:

“We call this ‘liquidity mining’ because it’s conceptually similar to PoW mining. Instead of using mining rigs and electricity, liquidity miners use computational resources and token inventory to run market-making bots. By competing for economic incentives, they collectively achieve the goal of providing liquidity.”

This definition laid the conceptual groundwork. Though initially focused on centralized and decentralized exchange liquidity, the idea soon expanded into broader DeFi applications like lending and derivatives—giving birth to the broader concept of yield farming.

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Which Project First Implemented It?

While Hummingbot named it, Synthetix was likely the first DeFi protocol to implement a liquidity mining-like mechanism.

In February 2020, Synthetix launched a reward program for users providing liquidity to the sETH/ETH pair on Uniswap. Participants had to stake SNX, mint sUSD, convert it to sETH, pair it with ETH, and then deposit their Uniswap LP tokens into a Synthetix contract to earn SNX rewards.

Though they didn’t use the term “liquidity mining,” this setup mirrored what would later become standard practice: rewarding users for supplying assets to boost protocol liquidity.

Who Ignited the DeFi Summer?

If Synthetix planted the seed, Compound lit the match.

In June 2020, Compound launched its governance token, COMP, distributing it directly to users who borrowed or supplied assets on its platform—a model dubbed “borrowing is mining.” This marked a turning point.

Unlike previous token distributions, COMP rewards were distributed algorithmically and transparently through smart contracts. The move sparked massive user engagement, with people rushing to interact with the protocol to earn tokens. Even more importantly, it demonstrated that native token emissions could be used strategically to bootstrap liquidity and decentralize governance.

Although Compound didn’t call it “liquidity mining” at the time, the rest of the ecosystem took note. Within weeks, new projects began copying the model, launching their own token distributions tied to user activity. Thus began the DeFi Summer, a period of explosive innovation and adoption.

Liquidity Mining vs. FCoin’s “Transaction Mining”: Are They the Same?

Some critics argued that Compound’s model was just a rehash of FCoin’s "transaction mining" scheme from 2018—a Chinese exchange that rewarded users for trading volume.

But there's a crucial difference:

Moreover, while early models like Hummingbot’s resemble transaction mining, protocols like Compound and Synthetix evolved the concept into something more sustainable—tying token rewards to real economic activity such as lending, borrowing, and liquidity provision.

By the Numbers: One Year of DeFi Growth

Let’s examine how key metrics have evolved since June 2020.

Total Value Locked (TVL): Up 140x

TVL measures the amount of assets deposited into DeFi protocols. In June 2020, TVL stood at $940 million**. By May 2021, it peaked at **$131.4 billion—a nearly 140-fold increase.

This surge reflects growing confidence in smart contract-based financial systems.

Borrowing Volume: Up 170x

DeFi lending platforms like Aave and Compound saw borrowing volumes climb from $150 million** in June 2020 to **$26.7 billion at peak—over 170 times growth—indicating strong demand for leveraged positions and yield strategies.

Active Users: Up 140x

Daily unique addresses interacting with DeFi protocols grew from around 6,200 to 850,000—a 140x jump, showing mass user adoption beyond early crypto enthusiasts.

Trading Volume: Over 1000x Increase

Daily trading volume across DEXs rose from $22.3 million** (May 2020) to **$23 billion (May 2021)—an increase exceeding 1000x, driven largely by Uniswap, SushiSwap, and the rise of Binance Smart Chain.

Gas Prices: Spiked 18x

As DeFi usage surged, so did network congestion. Average gas prices jumped from 30 GWei in June 2020 to 544 GWei by September—a nearly 18-fold spike. The peak coincided with Uniswap’s UNI airdrop, which triggered massive on-chain activity.

Block Size (Gas Limit): Increased 50%

To handle higher demand, Ethereum miners gradually raised the block gas limit from 10 million to 15 million, a 50% increase over one year—showing community-driven scalability adjustments.

Stablecoin Supply: Up 10x

Stablecoin issuance on Ethereum grew from $7.3 billion** to **$70.5 billion, reflecting increased demand for dollar-pegged assets used in trading, lending, and yield strategies.

Wrapped BTC (WBTC): Up 48x

Bitcoin’s presence in DeFi exploded—from just 5,200 BTC locked in June 2020 to over 250,000 BTC today—proving that cross-chain asset integration is critical for DeFi’s expansion.

Oracle Call Volume: Up 500x

Decentralized oracles like Chainlink saw daily calls grow from 72 to nearly 40,000 in six months—a 500x increase, underscoring DeFi’s reliance on secure off-chain data.

👉 See how next-gen financial tools are leveraging oracle networks today.

Frequently Asked Questions (FAQ)

What is liquidity mining?

Liquidity mining is a mechanism where users earn tokens by providing liquidity to a DeFi protocol—such as depositing funds into a lending pool or adding assets to a decentralized exchange (DEX) pair. Rewards are typically distributed in the form of governance or utility tokens.

Is yield farming still profitable?

While early yields reached triple digits, returns have normalized due to increased competition and market saturation. However, optimized strategies combining staking, compounding, and multi-protocol exposure can still generate solid returns—especially on emerging Layer 2 networks.

Did liquidity mining benefit real users or just whales?

Initially, large investors ("whales") and automated bots ("yield farmers") dominated rewards. However, many protocols have since refined distribution models to favor long-term participants and retail users, improving fairness.

Can DeFi sustain growth without liquidity mining?

Liquidity mining was a powerful growth hack, but long-term sustainability depends on real utility—such as better UX, lower fees, institutional adoption, and integration with traditional finance. The next phase will focus on product-market fit rather than token incentives alone.

How has Layer 2 impacted DeFi?

Layer 2 solutions like Optimism and Arbitrum drastically reduce transaction costs and increase speed. This unlocks access for smaller users and enables complex applications (e.g., perp DEXs, derivatives) that were previously impractical on Ethereum mainnet.

What risks come with liquidity mining?

Key risks include impermanent loss (for LPs), smart contract vulnerabilities, regulatory uncertainty, and volatile token prices. Users should conduct due diligence before participating in any yield-generating protocol.

What’s Next for DeFi?

Despite recent market slowdowns and declining TVL—from highs of $131B to around $56B—DeFi remains in its infancy.

Consider this:
Even at $56 billion TVL, DeFi represents only about 14% of the combined value of ETH, major stablecoins, BTC on Ethereum, and top DeFi tokens—all assets already deeply embedded in the ecosystem. There's vast room for expansion.

However, scalability remains a bottleneck. High gas fees and slow confirmation times limit accessibility. The solution? Layer 2 networks.

With multiple L2 rollups now live or即将上线 (launching imminently), we’re entering a new era of cheap, fast, scalable DeFi. These infrastructural upgrades will enable innovative economic models beyond simple liquidity mining—perhaps leading to the next breakthrough: sustainable, user-first finance.

👉 Explore how Layer 2 innovations are shaping the future of decentralized apps.

Core Keywords

DeFi’s journey over the past year proves that when aligned incentives meet open infrastructure, innovation accelerates exponentially. As we look toward 2025 and beyond, one thing is clear: the revolution isn’t slowing down—it’s just getting started.