DeFi Is Getting Crushed - Losing Hope?

DeFi was all the rage a few years back. First introduced it looked like it was going to be a new era for crypto. However that quickly got crush by bad actors. From DeFi rug pulls, hacks which continue to this day and falling APRs it's clear to see why the defi chart is looking like this...

A dismal display compared to where it was during the bull market run. We have now returned to TLV of just 37 billion putting us towards the start of the bull run in Feb 2021.

So what's going on with DeFi? Is money flowing out of it into other assets? When you think about it most of these tokens can safely be locked up and earn a 4% yield or better from normal staking and it does seem to be an area that is catching on.

But there's a new feature in town that might be explaining why the charts are looking a little off. From DeFiLlama the protocols that deposit into another protocol and then is used on platforms such as Lido are not counted into this figure.

Lido offers users the ability to stake their tokens such as Ethereum, Polygon and Solana and earn a decent base APR however they then receive what is known as a stToken. These stTokens can then be used into their DeFi pools for rewards.

A Shift

It's important to note however we are starting to see a shift. This shift is still slow moving at the moment but could potentially be a massive boost to the DeFi space. I touched a bit on this in two of my articles which you can read below...

Liquid Staking Tokens The Next Evolution?
Is DeFi a Broken Thing Of The Past?

Even though this shift is a more promising one as of late there's other headwinds hitting defi as of late.

A new bill that sweeps crypto that is currently in the house would possibly take all DeFi platforms and require KYC and full tracking. As much as we hear decentralized all the time many if not all of these systems are still centralized. The only one that I believe is still truly decentralized would be bitcoin.

Yields

Another factor could be that with increasing interest rates the promise of 4% yields or 7% yields with risk involved compared to dumping it into the back for 4%-5% yields no longer is worth the risk causing people to pull out of DeFi and crypto and back into USD or at least USD stablecoins and earn interest on it like we see happening with Coinbase and other large corporations.

Corp Profits

This stems from Tether bolstering massive profits from their stablecoin program. Accounting for billions in profits through short term investments as the fed continues to increase rates. This is an opportunity many are eager to jump on board with and are simply no longer waiting on government to make up their mind which we saw in the case of paypal just a few weeks ago.

When it comes to investing higher risk should account for higher APRs and potential gains while less risky options pay a lower APR. However this seems to have nearly flipped or almost evened out to the point where inventors are simply just not willing to take on the added risk for a small gain or same gains.

This paints a picture of the DeFi space not recovering for at least two more years until the fed starts to lower rates again which we are clear won't be happening this year and most likely not next year either.

Posted Using LeoFinance Alpha