Currently, the cryptocurrency market is recovering after a challenging period, and the question arises as to whether DeFi is benefiting from the recent rally. After events like the collapse of Three Arrows Capital (3AC) and liquidity issues at Celsius, the DeFi space has faced many challenges. However, with the strong market recovery, “Is DeFi Benefiting From the Last Rally?” becomes an important question when exploring the impact of this price surge on the development of DeFi protocols. In this article, Financial Insight Daily will analyze whether DeFi is truly benefiting from the recent rally and the changes in how investors are approaching the market.
DeFi Insights and Recovery in 2022: A Comprehensive Look at the Recent Rally
In recent months, the DeFi space within cryptocurrency has faced a challenging period. Notable events such as the collapse of Three Arrows Capital (3AC) and liquidity issues at Celsius have shaken the industry, leading to a series of liquidations and bankruptcies. This turmoil resulted in stETH (staked Ether) detaching from ETH, as many investors and retail users quickly repaid loans on DeFi lending protocols to avoid liquidation. Furthermore, the growing preference for lower-risk and more liquid positions contributed to the declining supply of ETH circulating in DeFi.
As of July 22, 2022, according to IntoTheBlock’s DeFi Insights Index, the trend of decreasing ETH supply in DeFi became apparent. However, with the recent rally in the crypto market, Bitcoin and Ethereum have experienced significant gains — 14% for Bitcoin and 37% for Ethereum in the past seven days. This raises the question: Is DeFi benefiting from the last rally? The answer is a resounding yes.
DeFi Recovery: TVL Growth and Key Protocols
The total value locked (TVL) across DeFi protocols has seen an impressive 13% increase, equivalent to over $10 billion being added to the DeFi ecosystem. This marks the largest influx of funds into DeFi that IntoTheBlock has observed in a seven-day period over the past month. However, the growth has not been uniform across all DeFi sectors.
Protocols that involve collateral components, such as lending and collateralized debt positions (CDPs), have seen slower growth compared to decentralized exchanges (DEXs) and liquidity staking solutions. For instance, MakerDAO’s growth rate was 11%, whereas Uniswap and Lido saw growth rates of 17.3% and 31.4%, respectively, within the same timeframe. This disparity suggests that while there is newfound optimism in the crypto market, many users remain hesitant to return to high-risk positions such as leveraged lending, where potentially higher profits are made.
Cautious Optimism: A Step Towards Better Risk Management
This caution can be attributed to users taking a step back to assess how to re-enter DeFi with better risk management strategies to avoid repeating the pitfalls of 3AC’s collapse. Proper risk management will likely play a pivotal role in the next stage of DeFi’s development, helping users re-engage with the space more cautiously and confidently.
IntoTheBlock’s CEO has already started to explore the components of risk and how they can be better integrated into DeFi strategies. This focus on risk management is expected to foster a safer, more sustainable growth environment for DeFi.
Lido’s Exceptional Growth and the Impact of wstETH
Despite the broader cautious sentiment, Lido stands out as the only top 5 DeFi protocol that has seen growth rates similar to Ethereum’s in the last week. One of the primary drivers for this growth is Lido’s launch of wstETH for Layer 2 networks. The increase in Lido’s TVL and the ongoing growth in stETH address holdings suggest that users remain optimistic about DeFi and are preparing their assets for deployment in the future.
The cryptocurrency market is currently in a recovery phase after a tumultuous period, raising the question of whether decentralized finance (DeFi) is benefiting from the recent rally. After a series of setbacks, including the collapse of Three Arrows Capital (3AC) and liquidity issues at Celsius, the DeFi space faced considerable challenges. However, with the strong market resurgence, it’s crucial to explore how DeFi is reacting to the recent price surge. In this article, we will analyze whether DeFi is truly benefiting from the rally and examine how investors’ strategies are evolving as the sector continues to recover.