Feb 23, 2022
Over the past few months, the macrotrend in the cryptocurrency market has been bearish. As Bitcoin fell from its newly created highs late last year, most altcoins followed suit. In fact, the aggregate valuation of the cryptocurrency market has remained pent up ever since.
The DeFi sector was one of the most affected victims. According to data from TradingView, the total market cap of DeFi has shrunk by more than 40% from 199.4 billion to 1142 billion in a period of less than 4 months.
Source: TradingView
As a result, most DeFi tokens are trading at less than half their prices compared to last November.
Have the fundamentals also started to weaken?
According to DeFiPulse data, the Total Locked Amount [TVL] in DeFi to has shrunk by more than 35 billion since November. Simply put, this metric represents the cumulative value of all assets locked in protocols, whether through staking, borrowing, or liquidity pools. So as users make new deposits or withdraw their assets, this number keeps fluctuating.
Source: DeFiPulse
In the microframe, the individual protocols started to see the flows of funds. Aave’s TVL is up about 5% on the daily chart. Companies like Maker, Curve and Convex Finance also witnessed small increases in the range of 0.35% to 1.75%. The value locked in Composite, on the other hand, remained practically unchanged in the same period.
At the same time, the recovery of native tokens of the aforementioned protocols, after the tumble on Tuesday, was remarkable. The AAVE and COMP are up 7% from yesterday, while the MKR is up 10%. Curve and Convex Finance’s CRV and CVX also moved up the price scale by 6% and 3%, respectively.
Source: DeFiPulse
However, the status of Loan-to-Value [LTV] proportion of these protocols remains a matter of concern. This metric calculates the relationship between the loan and the value of an acquired asset. Eventually, the risk is measured based on the probability that the liquidity will or will not be sufficient to cover the loan balance.
So if users provide liquidity to protocols with higher LTV values, it essentially means they are facing more risk.
Now, as can be seen in the attached chart below, Aave and Maker’s LTV leaned in the macro frame, while Composite’s dropped. Currently, this ratio is 0.35, 1.11 and 0.23 for the aforementioned protocols.
Aave and Maker’s prospects on that front have started to deteriorate since the beginning of the falling price trend phase in November last year, while Compound alone has managed to keep its horses and do reasonably well even amidst the chaos.
Source: Dune Analysis
