Sui experienced a meteoric rise in decentralized finance (DeFi) activity in the latter half of 2023, as onchain protocols posted metrics showing a combined total value locked (TVL) of over $175 million, as of December 6. The decentralized exchanges (DEXes) and other DeFi services responsible for this activity benefited from the Sui community's work building a scalable network and creating a sustainable tokenomics model.
Designed to scale, Sui handles high traffic volume without a corresponding increase in gas fees. Its parallel transaction processing model achieves finality very quickly by distinguishing between single owner and shared objects. Both of these technical achievements serve DeFi users by giving them low-cost, quick transactions.
The Sui community's work in creating a fertile environment for DeFi in the first half of 2023 led to strong results for these protocols in the second half. Over 22 DeFi protocols operate on the network, ramping up TVL growth to the present number and delivering impressive volume numbers as well, hitting a combined $477 million for the month of November.
Foundational work
Using a proof-of-stake tokenomics model, Sui requires its Validators to hold a stake of 30 million SUI, its native token, and rewards them for processing transactions. In the first quarter of 2023, well before Mainnet launch, Sui ran Testnet Wave 2 as a means of testing the tokenomics model. Through various stress tests and exercises in a globally distributed environment, the results proved the model used the right mix of economic incentives to secure Sui’s scalable and parallelizable architecture. As predicted, gas fees remained low as the network’s computing power grew horizontally in response to increased demand.
Sui's real debut happened on May 4 with Mainnet launch, taking the network beyond its testing phase and opening the gates for an eager community and the wider industry. Bootstrapping an entirely new layer 1 blockchain, getting the flywheel of its tokenomics model turning, is no easy task. Beyond foundational elements, it requires community collaboration. Sui's token emission schedule, announced on June 28, serves as one element of thoughtfully bringing the network to sustainability. Although the tokenomics model sets an upper limit of 10 billion SUI, the emission schedule meters this amount over time, neither flooding the system nor starving it.
The Sui community launched DeepBook, its first native liquidity layer, on July 12, jumpstarting the DeFi ecosystem with an essential tool supporting token swaps. As a central limit order book, DeepBook serves both market and limit orders, giving apps and users flexibility in deciding how they want to buy and sell tokens. DEXes can leverage DeepBook to quickly ramp up their operations.
As another boon for Sui DeFi, liquid staking kicked off last summer. Requested by the community through a Sui Improvement Proposal, liquid staking essentially lets people commit their staked SUI to liquid staking tokens (LSTs) they can then use for yield-earning DeFi activities, such as loans and swaps. A liquid staking hackathon, running from mid-August to late September, resulted in three winners: Aftermath Finance with afSUI, Haedal Protocol with haSUI, and Volo with voloSUI.
DeFi growth
Sui's quick transaction processing and low, predictable gas fees led over 20 DeFi protocols to launch on the network in the last six months. These protocols, a combination of DEXes and lending platforms, offer a wide range of DeFi activities, giving users many options.
Amidst these protocols, many boast high growth numbers on social media. Cetus, a consistent top performer, accumulated $1 billion in trading volume as of November 26. On November 27, FlowX Finance posted it had reached over 500,000 transactions and over $9 million TVL. And Bluefin reported 24-hour trading volume of $151.3 million on December 4. These represent just a few of the individual DeFi success stories on Sui.
Defi users and protocols drove incredible DeFi growth on Sui, with metrics spiking in recent months. As of October 17, the network's TVL rose 341 percent, to $57.69 million, and volume rose 229 percent, according to DefiLlama. Sui hit a major milestone of over $100 million TVL on November 8. Then it crossed $150 million TVL on November 30. And then it went even higher, crossing $175 million TVL on December 6.
Beyond TVL, other metrics showing DeFi growth on Sui include transaction volume. Although volume tends to rise and fall from day to day, monthly averages show continued growth. As a more specific metric showing DeFi strength on Sui, users bridged over $100 million of the USDC stablecoin to the network as of December 7.
Creating opportunity
Beyond supporting Sui's underlying tokenomics, DeFi activity offers the promise of democratizing the financial industry. Activities once confined to Wall Street not only become available on Main Street, but even to developing countries around the world. This potential for economic opportunity opens up participation beyond the heavily capitalized.
The success of DeFi protocols on Sui in 2023 shows the network can be a supportive environment for global activity. And we look forward to seeing what 2024 will bring.
