DeFi Lending Sector Sees Investor Exodus Amid Market Meltdown

Industry analytics firm DappRadar has just released a report on the situation, and it doesn’t look pretty. On May 13, the firm reported that DeFi’s total value locked (TVL) is down more than 40% over the past seven days.

It stated that the slump had been caused by investors flipping tokens into stablecoins in preparation to cash out into fiat. However, the massive slump in token prices would also have impacted TVL, a dollar-based figure.

At the time of writing, DappRadar was reporting a nominal TVL of $83.4 billion, a dump of 48% since the beginning of the year.

Total value locked in key lending protocols is dropping as investors started flipping tokens to stablecoins with the intention of cashing out to fiat. @terra_money @AaveAave

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— DappRadar (@DappRadar) May 14, 2022

Terra Fallout Spooks Investors

The report stated that the collapse of the Terra stablecoin and its LUNA token had sent shockwaves through the DeFi ecosystem.

“Amidst massive concerns for Terra, UST, and LUNA, traders appear to be getting spooked and moving large quantities of stablecoins out of protocols.”

This is the opposite of what happened during the previous bear market in 2018 when crypto lending protocols performed well.

It added that the UST fiasco has affected DeFi lending as the stablecoin’s downfall has resulted in concerns from investors and regulators over the viability of such assets. UST was trading at $0.145 at the time of writing and the world’s largest stablecoin, Tether, was also marginally below its peg.

Circle’s USDC appears to have emerged unscathed this week and has even traded above its peg briefly. DappRadar noted that USDC trading volume has exploded over the past few days, peaking at almost $25 billion on May 13. Typical volumes for the stablecoin are around $5 billion per day, it noted before adding:

“The future of stablecoins has been thrown into doubt, but it is well worth remembering that, unlike UST, which is backed by crypto assets, the majority of stablecoin assets are backed with more tangible support.”

DeFi Tokens Tank

According to CoinGecko, DeFi-related tokens have tanked 47% overall during the past seven days. The total market cap for all DeFi coins was close to $100 billion this time last week. Today, it is just $52.7 billion, and a sea of red is still enveloping most of them.

Tokens for major lending protocols are all down heavily over the past week. AAVE has dropped 38% this week, KAVA is down 45%, and COMP has fallen by more than 32% during the past seven days, as reported by DappRadar. Additionally, Chainlink’s LINK and Uniswap’s UNI have both lost around 34% over the past week.

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