FinTech

DeFi analysis: Falling prices continue to make the situation worse

With the widespread feeling of fear in the crypto market, prices are still falling, although the volatility has decreased quite a bit. The DeFi space has been greatly affected by the low presence of buyers, and in this analysis we review the negative spiral that the fall in prices has meant.

Today, the total value blocked in DeFi protocols is $74.46 billion, a figure as low as in March 2021, when the bull run was beginning to take hold.

However, it is still a much higher value than the $600 million that this market had at the beginning of 2020. It is clear that the adoption has been massive, and we can confirm that this technology is here to stay; even so, it is not without obstacles.

Value locked in DeFi and list of the main protocols. Source: DeFi Llama.
Value locked in DeFi and list of the main protocols. Source: DeFi Calls.

Situational analysis: Falling prices create a negative spiral in the DeFi space

Like the entire crypto market, in this analysis we see that the main DeFi tokens are falling, with average losses of 10% in the last 7 days.

This is generating a spiral of negativism that hits the liquidity of DeFi protocols.

Various analysts agree that the tokenomic structures of many of these projects are not well designed at all, because they often use high inflation models to attract more liquidity to decentralized applications.

The high returns were, mainly, what attracted so many users and capital to the DeFi ecosystem. But, if the value of the token with which these returns are paid is not really sustainable due to high inflation, then users would have to take a lot of risk to deposit their capital in these applications.

Today the DeFi protocols that remain leaders, offer much lower rewards than those offered a year ago. And it is that to avoid a collapse of the platforms, there is no other way to follow.

If we add to all this a generalized price drop in the market, a drop in the locked value in all DeFi protocols was more than likely.

However, we still see much higher returns than those offered by traditional finance.

It is very likely that with the discounts we are seeing, users will soon start creating positions in solid decentralized protocols, where in addition to benefiting from a fixed return, they could make big profits when a new bullish rally starts.

A widespread downtrend

Currently, Avalanche (AVAX) is the largest of the DeFi tokens, and its current price of $16.82 is almost 90% below the all-time high of $147.

Uniswap’s UNI, which remains in this line of command, is also almost 90% below its peak. It is currently trading at $5.11.

History repeats itself with the third on the list, LINK. Its current price is $6.11, and its all-time high reached in May 2021 was $53.

In these three cryptocurrencies we can quickly observe that they follow the same trend of the entire crypto market. We could choose to keep an eye only on Bitcoin to locate a possible reversal of the trend.

We can also note that the previous bullish speed was much higher than the current correction, so it is clear which is the dominant force.

It is a matter of time before the dominant trend takes back control. AVAX for example, is about to meet the support zone where the previous rally started, which tells us that the pullback is already widespread, and the bottom may be close.

Weekly charts from: AVAX, UNI and LINK, the three leaders currently in the DeFi space. Source: TradingView.
Weekly charts from: AVAX, UNI and LINK, the three leaders currently in the DeFi space. Source: TradingView.

All our publications are of an informative nature, so in no case should they be accepted as investment advice.