Despite broad market weakness and waves of forced liquidations across crypto, DeFi’s total value locked (TVL) has proven surprisingly resilient – a signal that traders are still trying to generate returns despite bearish sentiment flooding the crypto market.
Over the past week, crypto majors BTC, ETH, XRP and SOL fell to year lows, with ETH now losing 21% of its value in the last seven days alone.
But that apostasy did not translate into outflows from DeFi protocols. Total value locked fell from $120 billion to $105 billion, down 12%, as it outperformed the market.
The 12% decline can be attributed to falling asset prices as opposed to yield farmers rushing for the exits. The amount of ether deployed across the DeFi market has increased from 22.6 million ETH at the start of the year to 25.3 million, with 1.6 million ETH being added in the last week alone, according to DefiLlama.
Onchain liquidations muted
Last February, the crypto market experienced a similar decline following the ascension of Donald Trump to the US presidency. Then the DeFi market was far more fragile, with a colossal set of $340 million in onchain liquidations on the verge of being triggered.
This time the DeFi market is better secured with only $53 million in liquidable positions within 20% of the current price. Positions on algorithmic interest rate protocol Compound will only become at risk if ETH slips below $1,800, although the biggest danger zone is between $1,200 and $1,400 — which contains $1 billion of liquidable positions, DefiLlama data shows.
Resilience shows the maturing sector
In previous cycles, the DeFi market was the first to implode. In 2022, investors succumbed to overly tempting dividends on the Terra blockchain by staking the algorithmic UST stablecoin, only for the entire ecosystem to collapse months later during a plunge in the market that reduced the value of cryptoassets backing the stablecoin.
This led to contagion across all DeFi markets, with TVL falling from $142 billion to $52 billion between April and June of that year.
This time, downside risk is minimal, interest rates are stable, and inflows are rising quietly – suggesting the sector has matured on the back of institutional adoption and broader market volatility.
