In a crypto landscape marked by DeFi (Decentralized Finance) asset value fluctuations and the setbacks of centralized crypto exchanges and services, Ethereum (ETH) staking has been thriving through platforms like Lido and Coinbase’s staking service.
Over the past year, the crypto industry has encountered a series of challenges, including the failures of centralized crypto exchanges and services. These incidents have prompted capital outflows from the DeFi sector, which has been grappling with the effects. Data from DefiLlama reveals that the Total Value Locked (TVL) in DeFi protocols across various blockchains has now dropped to just under $38 billion. This marks a substantial decline from the industry’s zenith in November 2021 when the TVL reached a staggering $178 billion. Remarkably, the current TVL figure even falls below the total value locked shortly after the collapse of the centralized exchange FTX in November 2022, which led to a two-year low in assets locked within DeFi protocols. Although the market did witness a recovery in April, with TVL briefly reaching approximately $50 billion, the metric has since retraced below $38 billion, despite the underlying cryptocurrency values not experiencing significant declines during this period.
It’s essential to note that the $38 billion figure does not encompass funds locked in liquid staking protocols like Lido. Since the FTX collapse, Lido has witnessed a substantial surge in its TVL, soaring from $6 billion to $13.95 billion. These protocols essentially “deposit into another protocol,” which accounts for their exclusion from the total TVL tally. Similarly, Coinbase’s staking service, introduced in September 2022, has amassed an additional $2.1 billion worth of Ethereum, elevating the total assets managed by such services to $20.2 billion. Liquid staking allows investors to stake their assets and earn yields while still enjoying trading liquidity through pegged assets issued by the staking provider, such as cbETH and stETH. This alternative can be more appealing to investors than employing lending protocols like Aave, which necessitate the locking of tokens and potentially expose users to unwanted protocol risks. Presently, Aave’s ETH and USDC yield rates stand at 1.63% and 2.43%, respectively, compared to Coinbase’s more attractive rates of 3.65% for ETH and 4.5% for USDC.
Meanwhile, the decline in the TVL of various DeFi platforms over the past month is also noteworthy. Aave’s TVL has dipped by 21% to $4.5 billion, while Curve Finance has seen a 26% decrease to $2.3 billion. One potential contributing factor to this downturn could be the US Federal Reserve’s hawkish monetary policy. This policy has resulted in higher yields on short-term government debt, rendering it a more enticing option for investors compared to stablecoin yields in the DeFi space.