DeFi Risk-Reward Imbalance Continues, TVL Drops Further


The total value locked in DeFi has decreased drastically since its peak in November 2021 of nearly $180 billion, to $37 billion, close to levels last seen in March 2021. Ethereum remains the leader with 57% of the market share, followed by Tron at 13.9% and BNB Chain, launched by Binance, at 7.8%.

The dropoff is due to several factors: the Terra crisis in May 2022, token prices collapsing, high yields becoming unsustainable, and trad-fi interest rates rising sharply, prompting investors to reallocate capital. Additionally, reputational damage to crypto could be further hurting the sector.

When analyzing the TVL in terms of ETH, which is down 55% since the start of 2022, we see that it has also decreased. In 2023, dollar-denominated TVL has dropped more than TVL in terms of ETH, which makes sense considering ETH has increased by 35% this year.

The crypto ecosystem is seeing suppressed volume, liquidity, and overall interest. There is hope that the ETF applications coming online in recent months could soon turn a corner, and as the tightening cycle may be coming to an end, DeFi may be in a better position to persuade investors to return.

It is clear that the risk-reward ratio is not where it needs to be for prospective investors, given the high traditional interest rates and lower yields in DeFi. The reputational damage sustained by crypto is another factor that may be dampening the progress of DeFi. However, times may soon change, as the outflow from DeFi is to be expected in this context.

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