Since the summer of 2020, the decentralized finance (DeFi) sector has witnessed a strong run, with the total value locked (TVL) in all DeFi protocols peaking at over $290 billion in December 2021.
However, the recent crypto market crash, which is the first crypto winter for the industry, has been tough on decentralized finance protocols. While Bitcoin is down by more than 45% of its all-time high, DeFi protocols have seen steeper corrections.
AAVE is down by 77% from its ATH, Compound has dropped by 85%, and MakerDAO by 71%. As a result of their declines, the TVL of the defi industry has dropped to $225 billion, with more than $30 billion lost since the start of the year.
DeFi is Experiencing Strong Liquidations
According to Dune Analytics, in the week ending January 22, more than $300 million worth of assets was pulled out of DeFi protocols.
The blockchain research firm further reports that between January 22 to January 24, more than 1,000 positions were liquidated across platforms like Compound, Aave, and MakerDAO.
Also, the activity on popular DApps has reportedly dropped by 20-30% in the last two weeks. In addition to the poor performance of their native tokens, DeFi protocols have experienced strong liquidations, developer departures, and user exodus.
Because DeFi protocols pay developers in their tokens, the waning value has forced many developers to jump ship.
According to Pedro Herrera, senior data analyst at tracker DappRadar, 80% of the current dApps could be flushed out of the market if the downtrend persists for a year.
On the Flipside
- Although the defi sector is reacting badly to its first crypto winter, many experts believe it to be the future of finance.
Why You Should Care
Despite the strong liquidations, Jeff Dorman of Arca explains the lack of issues with users getting money out of protocols validates the claim that DeFi is the future of finance.
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