Multiple data analytics show that there is a decline in the DeFi market’s total value.
Why Is The DeFi Market Struggling?
The DeFi’s TVL since the beginning of 2022 has dipped by nearly 19%. It is now $198B compared to $235B which it was as of December 2021.
DeFi TVL. Source: Defillama
While there hasn’t been any significant drop in the TVL of any specific platform, there has been a sharp decline in the TVL of many top protocols and platforms. The platforms with the most notable drop in TVL include Lido, PanCakeSwap, and AAVE. So far, there has been no analysis or tool to explain the significant decline in the TVL of the DeFi sector.
The only hint is the struggle of the crypto market to maintain any sort of bullish momentum since the start of the year. However, there haven’t been massive funds withdrawn in the DeFi space. Rather than withdraw their funds, investors have been contributing to liquidity pools to earn passive income.
The DeFi sector has been struggling since February, and the struggle became more pronounced last month when DEX trading volumes dropped to new lows. DEXs’ trading volume was around $92.2B last month, a decline from $117B two months ago.
While the DeFi space has been subjected to increased scrutiny by regulatory authorities. However, analysts agree that it isn’t the sole reason for the decline in its TVL. Nevertheless, regulatory scrutiny of the sector isn’t over yet and might even increase shortly.
Will The DeFi Market’s Struggles Before End The Year?
Developments in the DeFi space are crucial for the other sectors of the crypto market because DeFi remains the foundation of the crypto market. The level of use cases and the volume of developments makes the DeFi space one of the most active sectors in the crypto market.
The DeFi space has faced several challenges since the beginning of the year. The hacks in the sector this year alone have resulted in the loss of $1.25b from various DeFi-related projects. Also, the regulatory scrutiny of the DeFi space is negatively impacting it. Authorities want to increase oversight function over the DeFi market since they consider it a threat and financial risk to the traditional finance industry.
Possible Challenges For The DeFi Space This Year
Even though authorities are yet to agree on a specific approach to regulating the DeFi space, they have been taking some steps towards achieving their objective. A recent report by the IMF has suggested that various government authorities need to take a more critical look at how crypto wallets work and other aspects of the DeFi sector.
Recently, an Ethereum whale bought $29M worth of wBTC. Thus, making many analysts suggest that whales are indicating more interest in Dapps. Many industry experts are clamoring for a combination of DeFi and CeFi even though there has been huge criticism against centralized finance (CeFi). CeFi is the way crypto exchanges currently operate and how crypto platforms are in charge of crypto trading activities.
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