Monday, July 22, 2024

The Great Ethereum Divide: Staking Soars as DeFi Declines

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Alicia Garcia
Alicia Garcia
Alicia is excited about all things tech. She devotedly follows blockchain and crypto updates, sharing her passion through writing about it. She is a regular contributor for cryptocurrency news and articles.

Ethereum (ETH) staking has been flourishing through protocols like Lido and other services even as the value of DeFi assets continues to decline.

What is DeFi?

Over the past year, the crypto sector has experienced a series of setbacks, including failures of centralized crypto platforms, which has also led to capital outflows from the DeFi space.

The total value locked (TVL) in DeFi protocols is now under $38 billion. This is much lower than the peak of $178 billion in November 2021.

The current TVL is even lower than right after the FTX collapse in November 2022. That caused a 2-year low in assets locked in DeFi.

The market did witness a recovery in April, with the TVL rising back to approximately $50 billion.

However, since then, the metric has retraced back to below $38 billion, even though the underlying crypto values have not experienced significant declines during this period.

Meanwhile, the $38 billion figure does not include funds locked in liquid staking protocols like Lido.

Since the collapse of FTX, Lido has seen a substantial increase in its TVL from $6 billion to $13.95 billion.

According to analytics sites, these protocols “deposit into another protocol,” which explains why they are not included in the total TVL tally.

Likewise, staking services have accumulated billions worth of Ethereum, bringing the total assets held by such services to over $20 billion.

Liquid staking allows investors to stake their assets and earn yield while still enjoying trading liquidity through pegged assets issued by the staking provider.

This alternative can be more attractive to investors than using lending protocols, which require users to lock their tokens and potentially expose themselves to unwanted protocol risks.

As of now, lending protocol yields are around 2-3%, compared to staking service rates of 4-5% for ETH and stablecoins.

Meanwhile, the decline in the TVL of several DeFi platforms over the past month is also worth noting.

Top protocols have seen TVL declines between 20-30% over the past month.

One potential factor contributing to this decline could be the hawkish monetary policy of the United States Federal Reserve.

This policy has resulted in higher yields on short-term government debt, making it a more attractive option for investors compared to stablecoin yields within the DeFi space.


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