Cryptocurrency lenders are facing a major blow from DeFi.

Cryptocurrency lenders have experienced a real boom over the past couple of years, attracting tens of billions of dollars in bitcoin, ether and other currencies which in turn lend or invest, often in decentralized finance (DeFi) projects with staggering returns.

But with cryptocurrency markets collapsing, DeFi activity is particularly hard hit, depriving creditors of their most profitable returns and threatening to squeeze the entire industry, far beyond Celsius Network, which made headlines last week by freezing withdrawals and transfers. .

The total blocked value (TVL) on ethereum, a metric that attempts to track the value of tokens deposited in a variety of DeFi protocols, has dropped by $ 124 billion, or 60%, in the past six weeks, according to the data provider. Glassnode. .

The crash occurred in two major cryptocurrency tranches, $ 94 billion lost in the collapse of Project LUNA – which resulted in the collapse of the stablecoin TerraUSD – and another $ 30 billion in mid-June, Glassnode said, who attributed the falls due to a decrease in risk appetite.

“Current market conditions have put tremendous pressure on traders interacting with decentralized financial protocols to generate their returns,” said Mauricio Di Bartolomeo, co-founder and chief strategy officer of Ledn, a cryptocurrency lender.


Likewise, an index tracking cryptocurrency tokens linked to lending / lending and exchange protocols DeFi, from research firm Macrohive, plummeted 35% in the past week as investors squeeze their money out of the burgeoning sector.

Some DeFi protocols or projects are starting to offer lower yields, with average lending and lending rates on one platform, Compound, falling over the week for all but one cryptocurrency, the Pax Dollar stablecoin, Macrohive found.

In another sign of slowing, ether – the token that underpins the ethereum network on which many DeFi protocols run – fell last week to its lowest level against its big peer, bitcoin, in 14 months.

. Compared to the dollar, bitcoin has fallen 34% so far in June, while ether has fallen more than 40%.

The turmoil in this part of the high-yielding cryptocurrency market raises questions about the sustainability of the high interest rates that cryptocurrency lenders are offering their customers, often in double digits.


Some market participants say cryptocurrency lenders should educate customers about the risks of projects their money is invested in.

“I expect users to demand more transparency if their assets are managed in the DeFi space,” said Iakov Levin, CEO of cryptocurrency investment platform Midas Investments. “Crypto needs to find a more transparent model of return for individuals.”

New Jersey-based Celsius with over $ 11 billion in assets on its platform cited market volatility when it suspended redemptions last week. A search for data shows that it has been invested in several DeFi projects that have encountered difficulties.

“The DeFi market will undoubtedly suffer from this development as it also deals with cryptocurrencies and people will be more wary than ever in investing their assets in what they perceive as similar ecosystems,” said Yubo Ruan, founder and CEO of Parallel Finance. , a decentralized lending protocol.

Ruan said that if projects “promise rewards that seem too good to be true, there’s always a chance they are.”

GRAPH: Cryptocurrency Loan Rates

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