The decentralized finance (DeFi) sector has been one of the driving forces of the cryptocurrency market this year, with projects like Yearn.finance (YFI), Aave (AAVE) and Uniswap (UNI) quickly rising to "blue chip" status
But the old saying goes, "markets go up like an escalator and fly down like an elevator," and given the volatile nature of the cryptocurrency market, the elevator seems to be in free fall. DeFi-sector tokens are down at least 60% on average from their recent record highs, and the cryptocurrency market itself has lost more than $1.2 trillion in less than two weeks.
The pullback caused the value of blocked assets (TVL) on all DeFi-platforms to fall from a record high of $164.2 billion as of May 10 to the current value of $93.34 billion. Much of the locked-in value in DeFi-protocols depends on the value of their own tokens combined with deposits in BTC and ETH. Thus, the market downturn has led to a sharp drop in total TVL and it is further exacerbated by traders themselves withdrawing funds in an attempt to lock in balances.
Evidence of the speed of withdrawal is the surge in activity on the leading decentralized exchanges (DEX) on the Ethereum network. According to Dune Analytics, DEX volumes were 10% of their 2020 total in one day.
