How The Crypto Winter Has Impacted The DeFi Sector
09 June 2022 - 04:00AM
NEWSBTC
The crypto market trends to the downside as major assets are unable
to break above local resistance. As per usual, the dominant trend
picks winners and losers and unfortunately, the altcoin markets
have been amongst the latter. Related Reading | As Bitcoin
Slumps, BTC Miners Sell Of Their Tokens Creating Panic In The
Market In particular, decentralized finance (DeFi) protocols have
been severely impacted by the crypto downtrend. Some of the most
popular protocols in the Ethereum DeFi sector, perhaps the biggest
ecosystem in the space, record as much as 92% in losses. Jack
Niewold, founder of Crypto Pragmatist, set out to dig deeper into
the effects of the crypto winter in the DeFi sector. One of his
objectives was to determine if DeFi protocols can stay profitable
in this downtrend. As seen below, protocols like MakerDAO,
SushiSwap, Compound, and others saw a decrease in the price of
their native tokens and an even more steep decline in their
revenue. This evidence put into question the idea that DeFi and
crypto, as Niewold said, “really reached an inflection point”.
There is evidence of maturity in the space, institutional adoption,
and resistance to overall market declines in larger
cryptocurrencies. However, most of the DeFi sector has been unable
to retain its revenues. Niewold noted: To be fair, most DeFi tokens
have drawn by more than their fee rev, which is interesting–from a
‘fundamental’ perspective, stuff is trading at a discount. I think
that’s the first takeaway for me, that projects with real product
market fit are trading at a relative discount. Additional data
provided by DeFi Pulse indicates the total value locked (TVL)
across DeFi protocols has been trending to the downside with
revenues and token prices. This metric returned to its February
2021 levels and stands at around $50 billion. Crypto Bleeds As
Ethereum Dominance Rises The current downtrend is more palpable
across the entire layer-1 ecosystem. While Solana (SOL), Avalanche
(AVAX), and others experience a dropped in their prices and network
activity, Ethereum (ETH) benefits. The downside trend has
translated into a decrease in Ethereum fees. These are currently
priced at 2 Gwei or $0.13 for a fast transaction after averaging
100 Gwei or more during network congestion. As Niewold said, L1
networks such as Solana and Avalanche benefited from a rise in
Ethereum transaction fees, as these declines, users return to this
network. Niewold said: (…) in a period of decreased demand, it
makes Ethereum a lot more attractive relative to alt-L1s (…).
Alt-L1s do not benefit from this fee reflexivity, as their
competitive advantage dies down in periods of lower activity. As
NewsBTC noted yesterday, Bitcoin, Ethereum, and stablecoins USDT
and USDC, form 77% of the total crypto market cap. BTC and ETH
dominance has been on the rise during this downtrend and hints at
an overall de-risking behavior from crypto investors. Related
Reading | Ethereum Market Cap Cut By Over $100 Billion Last
Month At the time of writing, ETH’s price trades at $1,800 with a
2% profit in the last 24-hours.
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