Despite widespread market weakness and waves of forced liquidations in the cryptocurrency market, DeFi’s total value locked (TVL) has proven surprisingly resilient — suggesting that traders are still trying to generate gains despite the bearish sentiment awash in the crypto market.
Major cryptocurrencies BTC, ETH, XRP and SOL have fallen to multi-year lows over the past week, with ETH losing 21% of its value in the past seven days alone.
But this decline has not translated into outflows from DeFi protocols. Total value locked fell 12% from $120 billion to $105 billion, but outperformed the market.
The 12% decline can be attributed to falling asset prices rather than yield farmers rushing to exit. According to DefiLlama, the number of Ethereum deployed across the DeFi market has increased from 22.6 million ETH at the beginning of the year to 25.3 million ETH, with an increase of 1.6 million ETH last week alone.
On-chain liquidation calms
Cryptocurrency markets experienced a similar decline last February after Donald Trump took office as President of the United States. The DeFi market at that time was much more fragile, and a huge on-chain liquidation worth $340 million was about to be triggered.
This time around, the DeFi market has better collateral, with only $53 million in liquidable positions, a 20% difference from current prices. DefiLlama data shows that positions on algorithmic rate protocol Compound are at risk only if ETH falls below $1,800, although the greatest danger zone is between $1,200 and $1,400 — which contains $1 billion worth of liquidable positions.
The resilience display industry is maturing
In previous cycles, DeFi markets were the first to collapse. In 2022, investors succumbed to the Terra blockchain’s overly attractive yields by staking the algorithmic UST stablecoin, only to have the entire ecosystem collapse a few months later during a market rout, causing the crypto-assets backing the stablecoin to decline in value.
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 around, downside risks are minimal, yields are stable and inflows are quietly increasing – a sign that the industry has matured against a backdrop of institutional adoption and broader market volatility.
