Ethereum‘s staking phenomenon is witnessing unprecedented growth, yet the value of assets in decentralized finance (DeFi) platforms is taking a hit. Here’s an in-depth look at the evolving landscape.
A Decrease in DeFi Value Locks
Despite numerous failures of centralized cryptocurrency exchanges in the recent past, data indicates that the DeFi sector has seen a consistent decrease in its locked assets. As per DefiLlama, a renowned tracking platform, the total value locked within DeFi protocols across multiple chains stands at less than $38 billion. This is a staggering drop from its peak of $178 billion in November 2021. In fact, Ethereum protocols alone account for nearly $21.8 billion of this figure.
Notably, even the collapse of prominent centralized exchange FTX in November 2022, which triggered a massive drop in locked assets, saw higher numbers than today with a total value locked (TVL) of about $40 billion. To add to the industry’s woes, other centralized lenders such as BlockFi, Genesis, and Gemini Earn also succumbed.
Interestingly, post the FTX debacle, the TVL did make a comeback to roughly $50 billion by April. Yet, it did not sustain and dipped to below $38 billion soon after. This decline is intriguing, especially considering the relatively stable values of the underlying cryptocurrencies.
The Rise of Liquid Staking Platforms
This decline in DeFi’s locked assets doesn’t provide the full story. Liquid staking platforms like Lido have witnessed substantial growth. Their TVL skyrocketed from $6 billion to nearly $13.95 billion post-FTX’s downfall. It’s crucial to note that platforms like DefiLlama don’t account for these figures as such protocols “deposit into another protocol.”
Coinbase, a giant in the crypto space, launched its staking service in September 2022 and managed to amass an additional $2.1 billion in ETH. Together, staking services are holding a whopping $20.2 billion in assets.
But what’s causing this shift towards staking? Liquid staking offers users the ability to earn yields on their staked assets, while simultaneously maintaining trading liquidity via pegged assets, like cbETH and stETH, provided by the staking entity. Such advantages are making staking a preferred choice over lending platforms like Aave. For context, while Aave offers yield rates of 1.63% for ETH and 2.43% for USDC, Coinbase’s staking rates stand at 3.65% and 4.5% for ETH and USDC respectively.
Given the landscape, platforms like Aave have seen a 21% reduction in their TVL in just one month, settling at $4.5 billion. Similarly, Curve Finance reported a 26% drop, with their TVL standing at $2.3 billion.
Impact of External Financial Factors
The DeFi shift isn’t just about staking platforms and their yields. The global financial ecosystem plays a role too. The hawkish monetary policy of the United States Federal Reserve has elevated yields on short-term government bonds, making them potentially more enticing than stablecoin yields for investors.
The world of DeFi is witnessing a reshaping with Ethereum staking platforms on the rise and DeFi assets experiencing a decline. While centralized exchange failures have played a part, the attractiveness of staking yields and the external financial environment are also influential factors.
For those keen on exploring these developments further, diving deeper into platforms like DefiLlama, Lido, Coinbase, Aave, and Curve Finance can offer invaluable insights.