How Ethereum has put the DeFi market at risk

Here’s an analysis of how the market drawdown has affected the DeFi sector. What more could happen?



  • A further drop in ETH’s price could send the DeFi market into another round of liquidation.
  • The DeFi TVL across all chains submerged.

Ethereum [ETH] and assets linked to the Decentralized Finance (DeFi) sector are experiencing a wave of uncertainty in the market. Although ETH’s dominance in the smart contract space has been unwavering, liquidation in the crypto market arm reached $11 million. 

How much are 1,10,100 ETHs worth today?

According to Parsec Finance’s data, this liquidation was the highest recorded since 12 May. However, market participants might need to exercise more caution as DefiLlama data shed light on potential threats.

DeFi: Wary of the possibilities

At the time of writing, the multi-chain DeFi aggregator showed that the total liquidatable assets amounted to $1.7 billion. This metric describes the overall worth of DeFi assets with open futures or contract positions which could suffer losses depending on the market direction.

Based on DefiLlamas’ data, most of the liquidation in the last 24 hours occurred via the MakerDAO [MKR] protocol. However, there were several open staked Ether [stETH] and Wrapped Bitcoin [WBTC] positions at risk of suffering the same fate.

Source: DefiLlama

So, this could prompt market participants to carefully evaluate the risks involved with their sentiment.

Over the last 24 hours, it has not been rosy for the broader crypto market. For instance, ETH’s value decreased by 5.93%. DeFi tokens like Arbitrum [ARB] and Lido Finance [LDO] lost 12.49% and 18.16% respectively. 

With the falling prices, DefiLlama revealed that another 20% aggregate decrease in value could take another $161 million out of the market. 

Although 20% might seem like a lot, the press time market state does not take away the possibility. This is because more than half of the cryptocurrencies in the top 50 by market capitalization have experienced double-digit decreases in the last 24 hours.

TVL in the drain

Interestingly, the Total Value Locked (TVL) has not been exempt from the widespread gloomy picture of the market. Out of almost 200 chains in the sector, only one—zkSync Era—recorded growth in the last 24 hours.

As an indicator of whether a DeFi asset is undervalued or overvalued, the TVL measures the worth of tokens temporarily deposited into a protocol. 

Realistic or not, here’s MKR’s market cap in LDO’s terms

Ethereum, which has the highest TVL of $25.28 billion, lost 4.36% of smart contract deposits within the said period. Thus, the decrease implies that liquidity has been hoarded and flown out of the ecosystem by investors. So, Ethereum might not be performing at its highest capacity.

Under the Ethereum blockchain, Lido Finance continues to lead the pact with a TVL of $12.65 billion. Other projects, including MakerDAO, Curve Finance [CRV], and Aave [AAVE], trailed behind.

Source: DefiLlama

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