Decentralized finance (DeFi) continues to struggle, with less than $38 billion now locked in protocols across all chains – a massive plunge from its peak of $178 billion in late 2021. This prolonged slump is occurring despite the recent high-profile collapses of major centralized crypto services like FTX, BlockFi, and Celsius. This indicates investors remain risk-averse towards DeFi, even as flaws in centralized crypto firms emerge.
After briefly rising right after FTX’s failure in November 2022, DeFi’s total value locked (TVL) quickly reversed course and dropped back below $38 billion. At the same time, liquid staking protocols like Lido have surged in popularity, attracting over $20 billion in additional assets. Investors likely prefer the attractive yields of staking without having to lock up their assets or face smart contract risks inherent in DeFi lending protocols.
For example, oinbase">Coinbase and Lido offer Ethereum staking yields of 3.65% and 4.5% respectively – far higher than the 1.63% yield offered by DeFi lending platform Aave. Additionally, rising interest rates from the Federal Reserve make relatively safe government debt more appealing than the yields offered on stablecoins in DeFi.
Overall, the ongoing decline in assets locked in DeFi paints an uncertain picture of its evolution, as the lure of staking yields and traditional finance continues to outweigh the unique benefits of decentralized finance for many crypto investors – even after high-profile centralized failures like FTX shook trust in the industry.
