Major cryptocurrency lenders are facing a fall in decentralised finance (DeFi) investing as cryptocurrency markets have tumbled.
DeFi, an emerging financial technology based on secure distributed ledgers similar to those used by cryptocurrencies removes the control that banks and institutions have on money, financial products and financial services allowing people to transfer finds within minutes, without having to pay additional fees.
In the past two years, crypto lenders managed to attract big amounts of bitcoin, ether and other cryptocurrencies which they have invested in a number of DeFi projects with high returns. But as the cryptocurrency market collapsed, so did the returns.
The total value locked (TVL), a metric that attempts to track the number of tokens deposited in a number of DeFi protocols, has declined from $231.83 billion in the beginning of April to $74.07 billion in the middle of June according to data provided by DeFiLlama.
“The current market conditions have put an enormous amount of pressure on operators that interact with decentralized finance protocols to generate their yield,” the co-founder and chief strategy officer of crypto lender Ledn, Mauricio Di Bartolomeo, told Reuters on Tuesday.
Further intensifying the selloff were the liquidations faced by the crypto hedge fund Three Arrow Capital (3AC) and the crypto platform Celsius. In addition, the large sums of money lost during the collapse of the LUNA cryptocurrency at the beginning of May and the failure of the TerraUSD (UST) stablecoin have decreased investor risk sentiment.
In the aftermath, DeFi protocols and projects are starting to offer lower returns.
Cryptocurrency markets have been feeling bearish since the collapse of the TerraUSD (UST) stablecoin and the LUNA cryptocurrency, however the trend was also fuelled by the Federal Reserve interest rate hikes.
In the past week, bitcoin (BTC), the number one cryptocurrency by market capitalisation dipped by 5.58%, falling to the $19,000 levels on Monday. Ethereum (ETH) lost around 4% of its value in the past week and BNB is 1.09% lower.
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