Cryptoverse: Crypto Lenders Face a DeFi Beatdown

A representation of bitcoin is seen in an illustrative image taken at La Maison du Bitcoin in Paris, France, June 23, 2017. REUTERS/Benoit Tessier

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June 21 (Reuters) – Crypto lending may not be in decline, but it is certainly on the ropes.

Crypto lenders have boomed in the past two years, attracting tens of billions of dollars in bitcoin, ether, and other currencies which they in turn lent or invested, often in decentralized finance (DeFi) projects with sky-high returns. . read more

But as crypto markets tumble, DeFi activity is particularly hard hit, robbing lenders of their most lucrative returns and threatening to squeeze the entire sector out, reaching far beyond Celsius Network, which grabbed headlines last week when it froze prices. withdrawals and transfers.

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The total value locked (TVL) in ethereum, a metric that attempts to track the value of tokens deposited in a variety of DeFi protocols, has decreased by $124 billion or 60% in the last six weeks, according to data provider Glassnode.

The crash came in two big chunks of cryptocurrencies, $94 billion lost during the collapse of the LUNA project, which involved failed stablecoin TerraUSD, and another $30 billion in mid-June, Glassnode said, which attributed the drops. decreased appetite for risk.

“Current market conditions have put enormous pressure on operators who interact with decentralized finance protocols to generate their returns,” said Mauricio Di Bartolomeo, co-founder and chief strategy officer at crypto lender Ledn.

BITCOIN VS ETHER VS DOLLAR

Similarly, an index tracking crypto tokens tied to DeFi lend/loan exchanges and protocols, from research firm Macrohive, plunged 35% last week as investors pulled money from the once-high-flying sector. .

Some DeFi protocols or projects are beginning to offer lower returns, with average borrowing and lending rates on one platform, Compound, down on the week across all but one cryptocurrency, the Pax Dollar stablecoin, Macrohive found.

In another sign of the slowdown, ether, the token that underpins the ethereum network on which many DeFi protocols operate, fell last week to its lowest level against bitcoin in 14 months.

Against the dollar, bitcoin is down 34% so far in June, while ether is down more than 40%.

The turmoil in this high-yielding part of the crypto market raises questions about the sustainability of the high interest rates that crypto lenders offer their clients, often in the double digits.

TOO GOOD TO BE TRUE?

Some market players say that crypto lenders should inform clients about the risks of the projects their money is injected into.

“I hope that users will demand more transparency if their assets are managed in the DeFi space,” said Iakov Levin, CEO of crypto investment platform Midas Investments. “Crypto needs to find a more transparent model of retail performance.”

New Jersey-based Celsius, with more than $11 billion in assets on its platform, cited market volatility when it suspended redemptions last week. A data trace shows that it was invested in several DeFi projects that struggled. read more

“The DeFi market will undoubtedly be affected by this development because it deals with cryptocurrencies as well and people will be more cautious than ever before investing their assets in what they perceive to be similar ecosystems,” said Yubo Ruan, founder and director. executive at Parallel Finance, a decentralized lending protocol.

Ruan said that if projects “promise rewards that sound too good to be true, there’s always a chance they are.”

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Reporting from Medha Singh and Lisa Mattackal in Bangalore; Edited by Alun John and Pravin Char

Our standards: the Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, according to the Trust Principles, is committed to integrity, independence and freedom from bias.

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