In a remarkable turnaround, the DeFi lending protocol Gearbox is on the verge of reclaiming its all-time high for total value locked (TVL). Following a significant downturn last year, when its TVL plummeted by nearly 80% from a peak of $410 million, Gearbox has rebounded impressively, currently sitting at approximately $340 million, according to DefiLlama data. This resurgence is particularly noteworthy given the typical trends in decentralized finance, where many platforms fail to recover once airdrop incentives fade.
The sharp decrease in TVL experienced last year was largely driven by users shifting their focus to lucrative farming opportunities from restaking services like Renzo, leaving Gearbox in their wake. However, the protocol has successfully utilized strategic integration of unique assets to revive its standing. A team member, known as Mugglesect, highlighted that Gearbox is making a calculated bet on user engagement through leveraging its distinctive financial products rather than merely chasing the next speculation-driven farming trend.
This revival coincides with a broader resurgence in the crypto lending sector, which has seen total deposits balloon to $130 billion. Gearbox’s growth comes despite its smaller stature compared to dominant players such as Aave and Morpho, which boast tens of billions in deposits. Gearbox’s unique appeal lies in its credit accounts, innovative smart contract wallets that allow users to deploy leveraged capital across multiple DeFi markets for various activities, including trading and staking.
In a credit account, users can deposit collateral, such as Ether, which enables them to borrow up to 40 times their initial capital. This facilitates the ability to participate in activities across other DeFi protocols without manually transferring borrowed funds, a process required by traditional lending platforms. Furthermore, Gearbox’s credit accounts can utilize assets across decentralized exchanges and offering options that traditional lenders cannot.
In March, Gearbox launched a groundbreaking lending market named Permissionless, which has significantly contributed to its recovery. The credit accounts on this platform account for a substantial $250 million of Gearbox’s current TVL. Permissionless employs risk curators—DAO-approved managers—who select assets and strategies compatible with credit accounts while managing risk parameters. This allows greater flexibility and a more responsive risk management mechanism compared to prior governance processes.
Under the Permissionless framework, Gearbox has expanded to incorporate five new blockchains and over 25 markets, effectively tripling its market breadth. The protocol now operates across 27 blockchains, positioning itself as one of the most extensive lending protocols in the space, with ongoing plans for further integrations.
Despite the advances, the rise in lending activity naturally introduces elevated risks. Nevertheless, Gearbox employs a robust strategy to mitigate potential unfavorable scenarios, conducting frequent network tests to prepare for unforeseen market events. The team’s proactive measures have previously demonstrated their efficacy during significant market turmoil.
Last year, Gearbox faced a critical situation when the liquid staking token ezETH lost its peg to Ethereum, leading to widespread sell-offs. While other platforms, including Morpho, faced losses, Gearbox’s design allowed it to avoid bad debt, allowing it to profit from the liquidations during this crisis. Since its inception in 2021, Gearbox has maintained a flawless record, having never incurred bad debt, further establishing its resilience in the volatile DeFi landscape.
As Gearbox continues on this trajectory, the protocol appears poised not only to recover lost ground but possibly to redefine the user experience in decentralized lending through strategic innovation and resilient risk management.
