Despite general market weakness and waves of forced liquidations in crypto, DeFi’s total value locked (TVL) has proven surprisingly resilient – a signal that traders are still trying to generate returns despite the bearish sentiment flooding the crypto market.
Over the past week, crypto majors BTC, ETH, XRP and SOL have fallen to multi-year lows, with ETH now losing 21% of its value in the last seven days alone.
But this decline did not translate into exits from DeFi protocols. The total value locked fell from $120 billion to $105 billion, a 12% decline as it outperformed the market.
The 12% drop can be attributed to falling asset prices rather than farmers rushing out. The amount of ether deployed in the DeFi market increased from 22.6 million ETH at the start of the year to 25.3 million, with 1.6 million ETH added in the last week alone, according to DefiLlama.
Chain liquidations are silent
In February last year, the crypto market saw a similar decline after Donald Trump became president of the United States. At the time, the DeFi market was much more fragile, with a mammoth $340 million series of on-chain liquidations about to be triggered.
This time around, the DeFi market is better collateralized with only $53 million in positions liquidable at less than 20% of the current price. Positions on the Compound Interest Rate Algorithmic Protocol only become at risk if ETH falls below $1,800, although the biggest danger zone is between $1,200 and $1,400 – which contains $1 billion in liquidable positions, according to DefiLlama data.
Resilience shows a sector in full maturity
In previous cycles, the DeFi market was the first to implode. In 2022, investors succumbed to the all-too-tempting returns of the Terra blockchain by staking the algorithmic stablecoin UST, only for the entire ecosystem to collapse months later in a market crash that reduced the value of the crypto assets backing the stablecoin.
This led to contagion across all DeFi markets, with TVL increasing from $142 billion to $52 billion between April and June of the same year.
This time around, downside risk is minimal, returns are stable, and capital flows are slowly increasing, suggesting the sector has matured amid institutional adoption and broader market volatility.
