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DeFi TVL crashes by over 37% in less than a Fortnight

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In what seemed like defi heading for another hot summer, instead felt the burn of the market-wide sell off.

It world of decentralized finance has been one of the biggest drivers of the surge in the broader cryptocurrency market over the past few months. However, the space has taken quite the beating after the series of massive corrections unfolded in the market last week.

According to the most recent DeFiLlama stats, the total value locked [TVL] across all decentralized finance platforms tumbled from an all-time high of $164.2 billion on May 10th to $95.5 billion two weeks later.At the time of writing, the TVL value had noted minor recovery and was found to be at $102.9 billion. However, it was still down by more than 37% in a period of fewer than two weeks.

DEFI
DeFi TVL crashes by over 37% in less than a Fortnight 2

It all started with Tesla Technoking, Elon Musk blocking Bitcoin payments which sparked the first major instance of sell-off. Bitcoin also suffered a setback after the hackers of Colonial Pipeline siphoned off with $90 million in a BTC ransom. In addition, China’s back-to-back reports on crackdowns of the cryptocurrency space further proved damaging.

DeFi tokens crumble

The crash in the defi space’s TVL is a result of the depreciation in the value of the tokens. The correction in the market has hit investors hard, especially the newer cohort, most of whom forayed the ecosystem at the beginning of the bull season that started late last year.

Over the past week, these tokens have tanked way more than Bitcoin [BTC] and Ethereum [ETH]. Top tokens such as Uniswap [UNI], Chainlink [LINK], Aave [AAVE], Maker [MKR] was still down by more than 45%, 40%, 44%, and 24% respectively.

Several projects on the decentralized finance space this quarter either pulled the rug or executed an exit scam or suffered a flash loan. These were especially observed on multiple Binance Smart Chain protocols which further added to the investors’ woes.

DeFi Major Aave Rolls Out Liquidity Mining Program

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Decentralized finance [DeFi] lending giant Aave announced the initiation of its liquidity mining program for V2 after the Aave Improvement Proposal [AIP] 16 received “overwhelming” affirmative votes from the community on the 24th of April and was officially executed.

The AIP was put forth by user Anjan Vinod, who happens to be an investment analyst at blockchain and DeFi focussed investment firm, ParaFi Capital. The launch of liquidity mining incentives for the Aave V2 protocol includes paying out governance token rewards exceeding 20% to users who borrow stablecoins. According to the DeFi platform, most of the rewards will target stablecoins in a bid to boost stablecoin liquidity.

The lending platform revealed that 2,200 staked AAVE [stkAAVE] will be allocated at a 50/50 ratio between depositors and borrowers until the 15th of July and is worth approximately $880,000 at press time prices. The distribution strategy is based on the markets’ borrowing demand.

Over two-thirds of rewards have been directed to the stablecoin USD Coin [USDC] and Tether [USDT] markets. The remainder of around 33% is being distributed among Aave’s DAI, ETH, wBTC, as well as GUSD markets. The platform’s official tweet detailing the announcement read,

“AIP 16 increases the liquidity in the Aave Ecosystem Reserve, which can be used to fund grants, devs, and builders through a community-led grants programme (currently an ARC on the governance forum) EyesHandshake”

The main objective of the program’s goal is further advance the lending and borrowing activity across markets and amplify the decentralization of the protocol’s governance that can be achieved by the distribution of governance tokens to more number of users.

In the beginnng, it only acquired around 60% support from its community for the AIP when first published on governance forums. The community had a change of heart after witnessing the success of other liquidity mining schemes following which they let the platform experiment in the new initiative.

Aave’s TVL Shoots Up To ATH

AAVE
DeFi Major Aave Rolls Out Liquidity Mining Program 4

According to the latest stats by DeFi Pulse, the total value locked [in USD] in the open-source non-custodial protocol has surged to a fresh all-time high of $7.52 billion on the 27th of April. At the time of writing, it became the third-largest DeFi protocol on Ethereum trailing behind other lending platforms – Maker and Compound.

DeFi Token Aave Continues To Tear Through Highs, Hits $436

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Aave, the open-source decentralized finance [DeFi] protocol has witnessed a massive rise over the last few weeks. In terms of the total value locked [TVL in USD] surged by nearly 24% over the past day alone pushing the figures to a new all-time high of $4.96 billion.

Aave TVL
DeFi Token Aave Continues To Tear Through Highs, Hits $436 8

The above chart by DeFi Pulse evidenced that money has been flowing through the second-largest DeFi protocol. The latest stats have positioned it as the best performing protocol of recent time.

AAVE’s Soars To New ATH

Interestingly, the protocol only had a few million dollars worth of crypto in it this time last year; since then it has risen to become the second-largest DeFi project on Ethereum. Its native token, Aave also followed the bullish trend, logging historic high prices and recorded a surge of more than 93% over the past week.

In fact, the DeFi token has risen by over 41% in 24-hour alone which drove its price to $436.01, at the time of writing.

Aave2
DeFi Token Aave Continues To Tear Through Highs, Hits $436 9

Aave has been on an absolute tear even as the rest of the DeFi tokens cooled down. What has helped the token sustain the latest rally?

Aave’s 24-hour trading volume scored a record $1.86 billion according to CoinMarketCap which is partially driven by investors acquiring more tokens for staking. Hence, the rising volume, as well as the growing demand for flash loans among the market participants are the main forces behind the price action.

In addition, the renewed uptrend in the cryptocurrency space has further bolstered the already building momentum.

According to the crypto-analytic platform, Santiment, Aave whales were also fueling the recent rally. Its tweet read,

“Aave whales, which we deem addresses holding 1,000 tokens or more (~$397k+ USD), have ballooned from 266 to 327 addresses this past month, fueling this rally.”

Santiment
DeFi Token Aave Continues To Tear Through Highs, Hits $436 10

In general, the DeFi tokens have garnered widespread adoption in the latest bull run. So much so that Mike Novogratz, the CEO and founder of crypto-focused merchant bank Galaxy Digital, said that while Bitcoin is probably a” safer option on a risk-adjusted basis”, another class of digital assets such as Aave, Chainlink, Compound, YFI, and Uniswap has the potential to take over in the coming years.

DeFi’s Appeal Still Strong; TVL Nears $29 Billion Before Tumbling

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Coins powering major decentralized finance [DeFi] protocols saw some strongest gains as the market hinted at a recovery earlier this week. This, in turn, prompted the total value locked [TVL] in DeFi to touch an all-time high of nearly $30 billion. on the 27th of January.

However, as Bitcoin’s price briefly slid below the support line of $30k on late Wednesday, DeFi’s TVL figures has since cooled off as it fell back below $24 billion.

DeFi Coins Caught In Hot Price Action

As for the DeFi coins’ value, except for Wrapped Bitcoin [WBTC], other top tokens have had a prolific week amassing double-digit gains.

Over the last 7-days, leading DEX Uniswap’s UNI token has recorded the most gains of nearly 80% and was valued at $14.17. TWJ had earlier reported that the protocol’s native token saw a ballistic rise in its price this bull run and emerged as one of the best-performing digital tokens in the world.

Open-source non-custodial platform Aave’s native token has also been on a bull run for the past several weeks and was priced at $279.02, at the time of writing. Its price made a run for $290 before losing steam. Despite the retracement, Aave noted a 7-day gains of 61.38%.

Compound’s governance token, COMP was the third-best performing token this week amassing gains of 23.77% over the same period of time.

DeFi Trends

According to a recent report by the blockchain company ConsenSys revealed that “the breadth of invention and adoption of DeFi kept pace in Q4 of 2020″ even as ” DeFi summer cooled off”.

There was certainly the rise of decentralized exchanges or DEXs in the last quarter of the year. The report stated that the total trade volume on DEXs in Q4 crossed a whopping $60 billion, and one of the main drivers of this activity is because Wrapped Ethereum [WETH] made it simple to swap ETH for any other ERC-20 token.

The last quarter also witnessed an increased demand from institutions and
other blockchain-based protocols to access the liquidity and economic activity on Ethereum. This can be attributed to the fact that despite its scalability issues Ethereum has managed to attract and accommodate digital assets from other blockchain protocols.

Undoubtedly, the appeal of DeFi has grown substantially despite Bitcoin’s price grabbing mainstream headlines. Many industry players are keen that the ecosystem’s adoption and utility permeating will be the main trends throughout 2021.

Aave’s Rising DAA Could Trigger Bullish Reversal in LEND’s Price

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One of the largest DeFi projects and provider of decentralized lending and borrowing, Aave has seen explosive growth this summer. However, as several DeFi protocol tokens plateaued, Aave’s native token LEND followed the suit with a consistent downtrend shortly thereafter.

It has lost substantial chunks of value and was down by more than 43% since peaking in the last week of August. Just when it seemed like the bearish momentum was unstoppable, a significant uptick with respect to daily active address was noted.

This was revealed by blockchain analytic Santiment further went on to add,

“LEND is seeing a massive surge inactive addresses transacting on its network. Normally resting between 80-100 addresses per hour, 1:00 am PDT showed a max of 3,866. #Aave’s network still appears to be handling much higher network activity than usual.”

santiment 1 scaled

Interestingly, this coincided with Aave [LEND] token swap to AAVE on the cryptocurrency exchange Binance which further bolstered the address activity surge that took place in the first week of October.

This metric important primarily because prices normally tend to follow DAA count on a long-term time scale over a period of time. Hence, a massive spike, such as this one, with respect to the address count is often seen as a bullish outlook as demand for the network surges.

Notably, over the past week, Aave’s token was up by 3.31% and was being traded at $0.511, at the time of writing. With total value locked in [in terms of USD] stood at $1.154 billion, Aave was currently the third-largest DeFi protocol, according to DeFi Pulse.

Investors Flocks to Grab a Pie

The latest bullish sentiment could also be attributed to the latest funding round in which Aave secured a whopping $25 million from investors Blockchain Capital, Standard Crypto, and Blockchain.com Ventures. According to the platform, this capital would essentially be directed towards the growing Asian markets as well as bringing the still-nascent DeFi space closer to the institutional investors.

Aave’s success story is the reason because of its rising popularity. Its native LEND token posted 23% gains in the first quarter. As DeFi hype began to unravel, the token surged by an astonishing 400% in the next quarter. This was noted by the latest CoinGecko report which further revealed LEND was up by 304% in Q3 of this year and was also one of the best performing assets with YTD gains of more than 3177%.