16 May 2022 12:16, UTC.
Reading time: ~2 m
DappRadar analysts believe that once the initial shock after Terra’s fall subsides, investors will stop withdrawing assets from DeFi and return to their traditional bearish strategy.
DappRadar has posted a report saying that the total value of blocked funds (TVL) in DeFi has fallen by more than 40% in seven days. The authors of the report put forward a version that the reason for the decline is caused by the conversion of cryptocurrencies into stabelcoins with further withdrawal into traditional currencies.
The report says that the collapse of the UST stabelcoin and Project Terra’s LUNA cryptocurrency has projected panic among investors in the DeFi market:
“Amid serious concerns about Terra, UST and LUNA, traders appear to be spooked and are withdrawing large amounts of Stablecoin from the protocols.”
DappRadar experts believe that the market is experiencing a situation that is the opposite of the dynamics of the previous bearish trend of 2018, when cryptocurrency protocols were in demand among investors. Analysts argue that the UST default has affected DeFi lending, as the fall in stablocoin has raised concerns among investors and regulators about the viability of such assets.
The report said the USDC Circle didn’t seem to be affected and even traded briefly above its peg this week. DappRadar noted that USDC trading volume has risen sharply over the past few days, peaking at nearly $25 billion on May 13. Typical volumes for Stablecoin are about $5 billion a day.
“The future of stablcoin has been questioned, but it’s worth remembering that unlike UST, which is backed by crypto-assets, most stablcoin has more tangible support,” the report insists.
DappRadar believes that once the shock passes, traders will return to the market and use traditional trading methods according to the bearish trend. The authors of the report emphasize: credit has flourished throughout the last cycle, and such an effective tool as providing liquidity in exchange for rewards will be in demand, as investors look for a safe means of saving and hedging risks amid global inflation.
At the same time, Chainalysis analysts warn that illegal activity in DeFi protocols has multiplied since last year.
#DeFi #market #suffered #collapse #Terra