The cryptocurrency landscape has witnessed a series of setbacks involving centralized crypto exchanges and services in the past year. Surprisingly, these challenges have not deterred consistent outflows from decentralized finance (DeFi), as indicated by recent data. DeFiLlama, a prominent analytics platform for DeFi protocols, reports a notable decline in the total value locked (TVL) within DeFi protocols across various blockchain networks.
Defi TVL sheds $140 billion since 2021 high
At its peak in November 2021, the industry boasted a TVL of approximately $178 billion. However, this figure has dwindled significantly, currently resting at less than $38 billion. Impressively, out of this remaining sum, nearly $21.8 billion is tied up within Ethereum-based protocols. Even the aftermath of the collapse of centralized exchange FTX in November 2022, which led to a two-year low in locked assets within DeFi protocols, did not significantly impact the outflows.
This period also witnessed the downfall of centralized crypto lenders such as BlockFi, Genesis, and Gemini Earn, as they succumbed to the surrounding contagion. Despite a resurgence in the TVL to approximately $50 billion in April, driven by market recovery, this metric experienced a swift regression to below $38 billion. Strikingly, this decline in TVL occurred despite relatively minor fluctuations in the underlying values of cryptocurrencies during the same time frame.
It is worth noting that the aforementioned $37.6 billion TVL figure does not encompass funds secured in liquid staking protocols like Lido. Since the collapse of FTX, Lido’s TVL has more than doubled, ascending from $6 billion to an impressive $13.95 billion. These types of protocols deposit funds into other platforms, making them exempt from the mentioned TVL calculation. Another noteworthy player, Coinbase’s staking service, unveiled in September 2022, has accumulated an additional $2.1 billion worth of Ethereum (ETH).
Liquid staking continues to gain traction in the market
Services collectively account for an additional $20.2 billion in assets. Liquid staking is gaining traction as it offers investors the opportunity to stake their assets and earn yield while retaining trading liquidity through pegged assets issued by the staking provider, like cbETH and stETH. This approach presents an attractive alternative for investors compared to lending protocols such as Aave. The latter necessitates users to lock their tokens, potentially exposing them to unwanted protocol risks.
Presently, Aave offers yield rates of 1.63% for ETH and 2.43% for USDC. In contrast, Coinbase’s staking service presents a more lucrative option, boasting a 3.65% ETH staking rate and a 4.5% USDC rate. Despite the resilience of DeFi, certain platforms within the ecosystem have witnessed recent declines in TVL. Aave’s total value locked has contracted by 21% in the past month, now standing at $4.5 billion. Similarly, Curve Finance has experienced a 26% reduction, settling at $2.3 billion. Outside the realm of DeFi, the hawkish monetary policy of the United States Federal Reserve has led to an increase in yields on short-term government debt.
This phenomenon may attract investors who find these yields more appealing than those offered by stablecoins. The DeFi sector’s ability to maintain consistent outflows despite challenges in centralized exchanges and other crypto services underscores its resilience and enduring appeal. As the DeFi landscape evolves, it’s clear that investors are seeking innovative solutions like liquid staking to maximize their returns while minimizing risk exposure.
