The total value locked (TVL) in decentralized finance (DeFi) protocols keep going to a flatline below $50 billion, adding less than $10 billion since December 2022, statistics from January 22 reveal.
Cryptocurrency and DeFi prices diverge
At $46.86 billion as of Jan 22, DeFi TVL has added roughly $6 billion from around $39 billion on Dec 31, 2022, possibly pointing to uncertain entrants still looking for support after the crypto freeze of 2022.
Performance in the DeFi scene stands in stark contrast to the overall performance of major crypto assets, including bitcoin (BTC). BTC prices are up roughly 40 percent from the December 2022 lows and more than 20 percent in the last ten trading days.
The expansion in the crypto ecosystem, caused primarily by lowering inflation and tightening labor markets in the United States, has seen BTC skyrocket, recently hitting a multi-month high of over $23,000. BTC has cooled to write but remains within a bullish formation, notably trending above the November 2022 highs and reversing losses from the FTX crash.
As cryptocurrency price valuations increased, it was widely expected that DeFi TVL would expand in sync. However, as the data shows, DeFi TVL lags behind the strong price action, an anomaly.
However, fundamental analysts could interpret this as an opportunity to double down on major DeFi tokens as they may be undervalued. Still, this preview can be used with caution despite the direct correlation between DeFi TVL and crypto prices.
In 2022, DeFi protocols were attacked by hackers causing multi-million dollar losses. The Binance cross-chain bridge, for example, was hacked for 2 million BNB, making it one of the largest thefts in cryptocurrency history. Regulators are also eyeing DeFi protocols and tokens, possibly discouraging certain jurisdictions from participating.
As the charts show, the rise in cryptocurrency prices since the end of 2020 is also marked the beginning of the increase in TVL. Since Q4 2020, the crypto market capitalization increased from around $400 billion to $2.8 billion in Q4 2021. During this time, DeFi TVL increased from $9.5 billion to $ 181 billion.
DeFi TVL Flat Lines
At spot rates, DeFi TVL is more than half the figure it printed in early December 2021 when it rose to over $181 billion thanks to strong token performance across the board. At peaks, ethereum (ETH), Solana (SOL), BNB Smart Chain (BNB) and other mainnet tokens soared to all-time highs, driving up TVL even on emerging DeFi platforms and Layer 2 networks.
Cryptocurrency prices are currently trending higher, but activity seemed subdued in DeFi. This development questions the activity and sentiment of users and whether they are interested in engaging in yield farming, trading, and other DeFi activities.
