The Downward Trend in DeFi Continues as Combined TVL Hits 30-month Low

CryptoMode DeFi TVL Drop

Recently, the decentralized finance (DeFi) sphere has seen its collateral reach the lowest in over two years, signaling a deepening bear market. Even more telling, the past five months have witnessed a rapid acceleration in this downward trend.

Key Statistics on DeFi’s Performance

DeFi’s total value locked (TVL) currently stands at a mere $42.45 billion, as reported by leading analytics service DeFiLlama. For context, the last instance TVL plunged under the $40 billion mark was in February 2021, when the trend was notably bullish.

Post the FTX’s downfall and during the low point of the crypto markets in late December 2022, DeFi TVL was at $43.6 billion. Shockingly, present figures are even lower. DeFiLlama highlighted, “On August 23rd, DeFi’s TVL touched a new bottom at $37.51 billion,” excluding specific liquid staking platforms.

Not Like Previous Dips

Check out our weekly crypto and fintech newsletter here! Follow CryptoMode on Twitter, Youtube and TikTok for news updates!

Reflecting to 2023, collateral peaked in mid-April, registering at $64.5 billion. But since that time, there’s been a substantial 34% drop. The broader crypto market decreased by a relatively modest 18% during the identical timeframe.

Further, December 2021 was a milestone month for DeFi, with its TVL at an impressive $212 billion. However, the decline has declined by 80% since then. This starkly contrasts the broader crypto market, which has seen a 64% decline from its record $3 trillion market cap in November 2021.

Exploring the Causes of DeFi’s TVL Setback

Several intertwined reasons might explain the sharp fall in DeFi collateral:

  1. Crypto Market Volatility: The broader crypto market has seen a decline of more than 10% in just the last two weeks, inherently affecting the valuation of the collateral.
  2. Diminishing Yields: Unlike the golden days of the 2021 bull market, current DeFi yields are subpar, diminishing the allure to earn on instruments like wrapped BTC or stablecoins.
  3. Interest Rates and the Federal Reserve: The recent hike in interest rates to levels not seen in years has complicated matters. DeFi platforms now find offering yields competing with these risk-free rates challenging.
  4. Regulatory Pressures: The American regulatory stance on crypto, especially DeFi, is clear and uncompromising. Bodies like the SEC want to restrict the DeFi sector, citing its inherent unregulatable nature due to its decentralized protocols.
  5. Security Concerns: With recurring security breaches leading to substantial financial losses, investor trust in the DeFi sector might be waning.

While the decentralized finance ecosystem has undoubtedly brought about revolutionary changes in the finance world, its current trajectory is cause for concern. Market volatility, regulatory challenges, and inherent risks underline the need for strategic evolution and adaptation.

Similarly, the other “hot trend” in crypto – NFTs – also notes significantly reduced market participation.

None of the information on this website is investment or financial advice. CryptoMode is not responsible for any financial losses sustained by acting on information provided on this website.