Funds locked in DeFi went from $231 billion in April to $110 billion in May. The bear market of bitcoin and the fall of Terra could be the cause of this decadence.
After a year of unstoppable growth, funds housed in decentralized finance protocols have approached levels registered a year ago. The bear market in digital assets and the decadence of Terra emerged as the main reasons that triggered this situation.
On May 16, DeFi collected a total value locked registered at USD 110.77 billion. July 2021 was the last time this amount reached that position, after operating for two months and proportioning that value, according to information collected and brought by media outlets.
Regarding the reasons that may have caused this decadent situation, two leading causes appear to have a protagonist role: The first of these reasons get linked to specific market conditions. As the price of significant digital assets such as bitcoin and ether crashes down, dollar deposits in DeFi also crumble without hesitation. Although the housed crypto-assets remained the same, their price decreased, and they collected less TVL.
The previous year, precisely in May, the most prominent digital asset was facing a correction process after its April all-time high peak. That downward behavior continued until July when both the BTC price and the DeFi TVL started to show evolution in their rate.
The Terra case, also noteworthy for DeFi
Another fact that affected the journey of DeFi this year is the subsequent decline of the Terra network. This situation adds its terra USD and Terra currencies and the rest of its environment, adding the DeFi Anchor protocol.
This event could get labeled as the heaviest cause that triggered the current situation of DeFi, whose figures started to decay visibly on May 7, just hours after the phenomenon with UST and LUNA started to burst.
Currently, Terra counts USD 392 million locked in its networks, an amount quite far from the USD 28.67 billion it highlighted during the first week of May. The network came to reign over 14% of the decentralized finance spectrum but now only approaches 0.46%.
Ethereum Appears to be Safer than other Platforms
The main reason Ethereum still reigns as the most famous blockchain for dApps probably relies on its capacity for decentralization.
A specialist has opened up about the subject and shared some of his thoughts. Evan Van Ness, the co-creator of the “Week in Ethereum News, says that people believe in Ethereum because it is the most decentralized platform. If something represents the digital environment, it is the value of decentralization, which is something that not all blockchains can bring to ordinary people.
By: Jenson Nuñez
