DeFi Hits A Multiyear Low
The total value of DeFi locked has slumped to a multiyear low of $37.5 billion, reflecting challenges in the decentralized finance market.
DeFi’s TVL is $37.5 billion today.
This is the lowest since early 2021 – it didn’t even get this low after FTX’s collapse. pic.twitter.com/x7D1an5HT2
— Edgy – The DeFi Edge (@thedefiedge) August 23, 2023
The decentralized finance (DeFi) market is witnessing an alarming decline. The total value locked (TVL) in DeFi protocols has reached its lowest point since February 2021, settling at $37.5 billion. This comes even as Ethereum (ETH), the foundation of the DeFi market, continues to soar this year.
Previously, the DeFi industry reached a stunning peak of $177 billion in TVL by late 2021. However, the hype soon dwindled following the crypto market crash and subsequent scandals. Now, it’s at a post-bull market low, surpassing the previous nadir of $38 billion set last December.
A growing concern is the U.S. government’s regulatory actions against crypto, which has made traditional finance entities wary of DeFi. This anxiety has likely contributed to a decline in trust and investment in decentralized protocols.
Several DeFi platforms, like Velodrome and Balancer, have suffered significant losses. Velodrome, an optimism-based decentralized exchange (DEX), faced a 58% drop in TVL, while Balancer, a leading liquidity protocol, saw its TVL diminish by 35% to $641 million.
Why is DeFi’s Popularity Waning?
A closer examination of the current crypto landscape explains why DeFi’s popularity is waning. The recent double-digit declines in Bitcoin (BTC) and Ethereum’s ether (ETH) triggered traders to withdraw liquidity from speculative assets within DeFi, contributing to the downtrend.
Intriguingly, DeFi’s decline has outpaced that of ETH, which has risen about 40% since December, even as DeFi’s TVL shrank. This indicates specific issues within the DeFi sector rather than broader market trends.
One key factor is DeFi’s sensitivity to U.S. Treasury yields. As Treasury yields went up, DeFi yields, though riskier, started offering lower rewards. When the Treasury yields were increased to 8%, the Dai Savings Rate (DSR) deposits quadrupled, reflecting a correlation between traditional finance and decentralized protocols.
Additionally, a wider problem with liquidity manifests itself through reduced trading volumes in major decentralized exchanges like Curve and Uniswap. These reduced volumes result in decreased liquidity and interest in the market, further lowering yields and reinforcing the trend of DeFi’s decline.
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Filed under: Bitcoin - @ August 23, 2023 8:22 pm