Despite a series of setbacks involving centralized crypto exchanges and services over the past year, data reveals that consistent outflows from decentralized finance (DeFi) have persisted throughout this period.
DefiLlama data indicates that the total value locked within DeFi protocols across various chains has dwindled to less than $38 billion, a significant drop from the industry’s peak of $178 billion in November 2021. Notably, Ethereum protocols presently account for roughly $21.8 billion of this remaining value.
Despite the turmoil that unfolded with the collapse of centralized exchange FTX in November 2022, which led to a sharp decline in the amount of assets locked in DeFi protocols, the current state of affairs is less impressive. The overall value locked (TVL) in DeFi, currently standing at approximately $37.6 billion, even falls short of the approximately $40 billion TVL recorded shortly after FTX’s collapse. This collapse had plunged many assets locked within such protocols to a two-year low. Notably, this period also witnessed the collapse of centralized crypto lenders like BlockFi, Genesis, and Gemini Earn, contributing to the downward spiral.
Although TVL did rebound to around $50 billion in April as the market recuperated, the metric has since reversed its trajectory, dipping below $38 billion, despite the fact that the underlying crypto values have experienced relatively minor declines during this timeframe.
It’s worth noting that the $37.6 billion figure excludes funds locked within liquid staking protocols like Lido, which has witnessed a substantial increase in TVL from $6 billion to $13.95 billion since FTX’s collapse. DefiLlama points out that these protocols “deposit into another protocol,” and thus, they are not accounted for in the mentioned tally.
Similarly, following its launch in September 2022, Coinbase’s staking service has garnered an additional $2.1 billion worth of ETH. In total, these services hold an additional $20.2 billion in assets. Liquid staking offers investors an avenue to stake their assets and earn yield while maintaining access to trading liquidity through pegged assets issued by the staking provider, such as cbETH and stETH.
This approach can be more appealing to investors than utilizing a lending protocol like Aave, which mandates users to lock their tokens and potentially exposes them to unwanted protocol risks. Currently, Aave’s yield rates for ETH and USDC are 1.63% and 2.43%, respectively, compared to Coinbase’s more attractive 3.65% ETH staking rate and 4.5% USDC rate. Aave’s total value locked has declined by 21% over the past month, settling at $4.5 billion, while Curve Finance has seen a 26% decrease to $2.3 billion.
Beyond the realm of DeFi, the United States Federal Reserve’s shift towards a more hawkish monetary policy has resulted in higher yields on short-term government debt. This trend could make short-term government debt seem more appealing to investors than what stablecoin yields can currently offer.