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DeFi daily volume hits 7-month lows amid the ongoing downswings

In this post:

  • The month of July was a tumultuous one for the decentralized finance (DeFi) industry, with transaction volume falling with a string of attacks and exploits.
  • Conic Finance, a yield-generating protocol, lost 1,700 ether in a reentrancy exploit last week, making it the biggest loser in July.
  • This month has seen a significant decrease in TVL for several different DeFi protocols, including the liquid staking protocol Ankr, the NFT-lending service BendDAO, and the Arbitrum-based decentralized exchange Chronos, which has seen a decrease of up to 50%.

Decentralized Finance (DeFi), formerly a booming area of the crypto market, is currently dealing with difficult circumstances as a result of an extended downturn. A recent study shows that the daily trade volume in DeFi has decreased to levels that haven’t been witnessed in seven months. 

Investors and analysts are becoming concerned about the future prospects of the DeFi market due to this notable fall in activity.

The downward spiral of DeFi’s daily volume

The crypto industry is known for its inherent volatility, and the DeFi sector is no exception. However, declining transaction volume and a string of hacks and attacks have made this a difficult month for the decentralized finance industry.

According to DefiLlama, Sunday’s $1.12 billion in transaction activity was the lowest day total for the whole decentralized finance market since January 1.

The total value locked (TVL) for all DeFi protocols fell from $45.3 billion in June to $42.9 billion in July as the industry struggled to stem the flow of declining asset prices. Bitcoin (BTC) was unable to break past the barrier at $31,500, while ether (ETH) fell in value from $1,920 to $1,850 over that time.

The highest loss in July was sustained by the yield-generating protocol Conic Finance, which saw 1,700 ether disappear in a reentrancy exploit just a week ago. From $125 million to $42 million, the TVL for the protocol has dropped by 65%.

Conic was not the sole entity facing the consequences of its exploit-related predicament. On Tuesday, EraLend, zkSync’s prominent lending protocol, also fell victim to a reentrancy assault, leading to a financial loss of $3.4 million.

Other DeFi protocols have also seen outflows this month, with Ankr, a liquid staking protocol, experiencing a 50% TVL decline, as well as BendDAO, an NFT lending platform, and Chronos, an Arbitrum-based decentralized exchange.

In the previous month, companies including MakerDAO, Blur, and Curve Finance have all lost more than 15% of their respective TVL.

There have been a few winners in the market, despite the fact that the bulk of players have been unable to take advantage of a broadly steady market. Since implementing its re-staking protocol, EigenLayer has seen a resurgence in revenue.

In addition, Lybra Finance and Marinade Finance, also based in Solana, have shown sustained growth, with their TVLs increasing by 73% and 45%, respectively.

Implications for the broader crypto ecosystem

The decline in daily volume within the decentralized finance sector raises concerns not only within the sector itself but also carries wider ramifications for the overall crypto ecosystem.

As DeFi projects contribute a lot to the liquidity of other cryptos, a drop in their daily trading volume can affect liquidity across the whole market. Liquidity is important for a healthy market because it makes sure that assets can be bought and sold without causing huge price swings. The drop in DeFi liquidity might cause more price fluctuations and slow the growth of the crypto market as a whole.

If the daily volume of DeFi keeps going down, investors might forfeit faith in the crypto business as a whole. Investors who once believed in the potential of DeFi might become more cautious and start to question the general reliability and stability of the market. For DeFi and the crypto world as a whole to recover, investors will need to trust the market again.

Regulator skepticism and falling investor trust are to blame for the DeFi sector’s plummeting daily volume, which has become a major issue for the crypto market. 

As the industry works to solve these problems, it will be crucial for DeFi projects to show that they are in line with rules and benefit users in some concrete way. The DeFi industry and the crypto ecosystem as a whole can only start growing sustainably and resiliently if these problems are fixed, and investor confidence is restored. 

The future of DeFi is uncertain at the moment, and how the industry reacts to the current challenges will likely determine its course.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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