Data reveals that blocked assets are consistently decreasing, possibly resulting from staking returns that provide investors with less reason to use other DeFi protocols. Nearly $38 billion is currently invested in decentralized finance (DeFi), despite the security weaknesses of centralized exchanges.
Liquid staking is gaining favor over DeFi lending since it offers risk-free returns. The Federal Reserve’s extensive monetary policy makes government debt more appealing than DeFi yields.
Despite numerous losses at centralized cryptocurrency exchanges and services over the past year, decentralized finance (DeFi) has experienced steady outflows during that time, according to data.
DefiLlama Report
DefiLlama (https://defillama.com/) indicated that less than $38 billion in cryptocurrencies remain locked in DeFi protocols on different chains, compared to the industry peak of $178 billion in November 2021. Nearly $21.8 billion of that amount is currently held on Ethereum protocols.
The total value is lower than the roughly $40 billion in total value locked up (TVL) in DeFi shortly after the collapse of the centralized FTX exchange in November 2022. This reduced the amount of assets locked up in those protocols to a two-year low. Centralized cryptocurrency lenders such as BlockFi, Genesis, and Gemini Earn also collapsed amid the surrounding contagion.
New court documents reveal that bankrupt cryptocurrency exchange FTX plans to safeguard its remaining assets through hedging arrangements, or alternatively generate yield from them.
Lawyers handling the company’s liquidation filed a request yesterday with the bankruptcy court. Along with this request, they also asked for the ability to carry out other activities. They asked for permission to access their inactive cryptocurrencies and sell some of them.
Although the Total Value Locked (TVL) rose to around $50 billion in April when the market improved, it quickly dropped back to below $38 billion. Surprisingly, the value of crypto underpinning it hardly changed during this period.
The $37.6 billion figure excludes the funds held in widely-used protocols for liquid staking, such as Lido; its LTV surged from $6 billion to $13.95 billion after FTX’s collapse. According to DeFiLlama, these protocols “bank within another protocol,” so they are not included in the total.
Additionally, since its launch in September 2022, Coinbase’s staking service has gathered an additional $2.1 billion in ETH. The combined assets for these services are worth $20.2 billion.
Liquid staking enables investors to stake their assets and earn returns, while also maintaining trade liquidity through linked assets provided by the staking provider (e.g. cbETH and stETH)
This could be a better option for investors than utilizing a lending platform like Aave, which requires users to secure their tokens and potentially encounter risky protocols. At present, Aave yields 1.63% for ETH and 2.43% for USDC, compared to Coinbase’s ETH staking rate of 3.65% and USDC rate of 4.5% (source).
Aave’s overall locked value has decreased by 21% in the last month, reaching just $4.5 billion, whereas Curve Finance’s has dropped by 26% to $2.3 billion.
Other than DeFi, the U.S. Federal Reserve’s strict monetary policy resulted in higher returns on short-term government bonds, which could appeal to investors.
By Audy Castañeda
