The TVL of decentralized finance (DeFi) continues to weaken. There have been some positive movements recently.
Total Value Locked in DeFi is basically the value, generally presented in US dollars, of cryptocurrencies, tokens or stablecoins that users deposited within a particular DeFi application, such as decentralized exchanges (DEX), through its different services, such as loans, pools liquidity or staking and liquid staking, or also within the blockchain in general.
Decentralized finance (DeFi) faces significant challenges, reflected in the current total value locked (TVL). Investors, both large and small, perceive vulnerability in their investments within these ecosystems. However, it is essential to recognize the subtle signs of recovery that the sector has shown recently.
The investors’ concern lies not only in the downward trend of the market, which is already a considerable factor. Added to this is the growing sophistication of cybercriminals when compromising decentralized applications.
Despite these challenges, the DeFi sector is still in its initial stages, seeking to establish itself as a viable alternative for large investments. Although the obstacles seem imposing, the potential of DeFi in the technological field is immense and promising.
DeFi TVL Status
Like the broader cryptocurrency market, DeFi TVL remains negative in the second half of 2023. At the beginning of July, it stood at $45.5 billion. Currently, its equivalent is $38.8 billion in the same monetary denomination.
Not all ecosystems are in the red on this measurement. For example, the Tron network maintains constant growth in the same period of time. According to data from DefiLlama, on July 1st it had $5.6 billion. Right now, blockages on that network amount to $6.7 billion.
However, the biggest player, Ethereum, has a completely negative record. So far in the second half of the year, its TVL fell from $26.8 billion to the current $21.3 billion. The highest point of DeFi TVL so far this year was reached during the month of April, when close to $53 billion was placed, something that is very far from right now.
The drop in investor interest could be a temporary issue. The arrival of an expected bull market in the crypto world could confirm that decentralized finance is alive.
Challenges Facing DeFi
One of the crucial challenges of DeFi is the lack of security measures, which still raises concerns among users. Since the beginning of the bear market, not many improvements have been implemented in this regard.
Hacks and exploits continue, resulting in hundreds of millions of dollars being stolen monthly. Scams also pose a significant threat, removing cryptocurrencies from circulation.
These exploits and scams have an impact beyond financial losses. Stolen assets are often removed from circulation, negatively affecting the market as a whole by reducing liquidity and limiting growth opportunities.
A Market in Trouble
Macroeconomic conditions are causing major problems in the broad cryptocurrency market. The main cryptos are at prices well below their 2021 peaks. Likewise, the ground gained in the first half of the year stagnated. The level of volatility in currencies like Bitcoin is at low levels rarely seen.
This situation notably affects both centralized companies such as exchanges and decentralized protocols. Decentralized finance desperately struggles to maintain a certain capitalization and volume that allows the continuity of the protocols.
However, conditions are tight and the collapse of the TVL of DeFi is an example of a not very pleasant moment. A similar situation occurs in the non-fungible token or NFT market.
By Leonardo Pérez
