Jun 21, 2022 01:35AM ET
By: AnalysisWatch
Cryptocurrency may not be on its way out, but it is certainly on the brink.
Over the past two years, crypto lenders have experienced a boom, attracting tens of billions of dollars in bitcoins, ether, and other coins, which they in turn lend or invest in, often in decentralized financial projects with sky-high returns.
But as crypto markets collapse, DeFi's activity has been hit particularly hard, depriving lenders of their most lucrative returns and threatening to shrink the entire sector—reaching far beyond the Celsius Network, which grabbed headlines last week when it froze withdrawals and transfers.
According to data provider Glassnode, the total value locked up in Ethereum—a metric that attempts to track the value of tokens deposited in various DeFi protocols—has declined by $124 billion, or 60%, over the past six weeks.
Similarly, a Macrohive index tracking crypto tokens linked to DeFi protocols and lending and borrowing exchanges fell 35% last week as investors fled the formerly high-volume sector.
In a further sign of slowing growth, ether-the token that underpins the ethereum network that runs many DeFi protocols-last week fell to its lowest level against its larger peer bitcoin in 14 months.
So far in June, bitcoin has fallen 34% against the dollar, while ether has lost more than 40%.
The turmoil in this higher-yielding part of the crypto market raises questions about the sustainability of the high interest rates that crypto lenders are offering their customers, often double digits.
New Jersey-based Celsius, with more than $11 billion in assets on its platform, cited market volatility when it halted redemptions last week.
A review of the data shows that it had invested in several DeFi projects that ran into difficulties.