The crypto market was extremely volatile this week and Decentralized Finance (DeFi) was also affected. How has the sector that wants to be the future of finance fared in this market phase?
DeFi logs have poured $ 41.11 billion in the past seven days. Since the Total Value Locked (TVL) all-time high of $ 154.39 billion, that’s a decrease of 26.63 percent.
At the same time, the “ETF token” Defi Pulse Index (DPI) has lost over 20 percent of its value on a weekly basis. The extreme volatility on the crypto market has repeatedly caused some DeFi protocols to reach their limits in the past. The corona crash last year caused MakerDAO (MKR) to find itself in such a dramatic economic imbalance that the protocol was on the verge of an emergency shutdown. At that time, many users were deprived of their savings. Many lost confidence in decentralized financial applications, at least for a short time. But a lot has changed since then. Because of this, today we’re going to take a look at how DeFi behaved during the last crash.
Decentralized Finance vs. Binance and Co.
The largest decentralized Ethereum exchanges UniSwap (UNI), SushiSwap (SUSHI), Curve (CRV) and 0x (ZRX) had no downtime. On the contrary, the data from Dune Analytics show that the decentralized exchanges recorded new record trading volumes during the stress test.
The transaction fees for trading on the decentralized exchanges were incredibly high at the time of the crash, but unlike centralized exchanges such as Binance, Coinbase and Kraken, there were no failures.
A lot of users have lost a lot of money because of the problems with the centralized exchanges. Part of this was because they simply couldn’t log in to sell their cryptocurrencies or close their long / short positions. According to Bybt futures positions valued at just under $ 7.6 billion were liquidated during the crash. Of course, DeFi protocols were also liquidated and a total of over $ 700 million was lost. But unlike the centralized exchanges, the Smart Contracts of the DeFi protocols worked as programmed.
DeFi users therefore had the opportunity to trade at any time and did not have to rely on central authorities if they had the necessary capital to trade on Ethereum. Last year, things looked different during the Corona crash: At that time, some users were able to exploit weaknesses in smart contracts and steal several million US dollars from DeFi protocols. Some users suffered enormous losses as a result.
How did stablecoins behave during the crash?
Stablecoins are an extremely important part of the overall crypto market. The coins backed by US dollars enable traders to trade crypto assets at lightning speed and they are also essential in the DeFi world. It is therefore all the more interesting to see how the various stablecoins behaved during the volatility of the past week.
The demand for stablecoins increased enormously during the crash. Tether (USDT), the largest stablecoin in the crypto space, rose to $ 1.08 for a short time as a result. It was only after the chaos had subsided that the stablecoin was able to level off again at one US dollar. Other stablecoins such as USDC, BUSD, DAI or FRAX also experienced slight fluctuations due to the extreme volatility. It is interesting, however, that the two decentralized stablecoins DAI and FRAX, some of which are backed by crypto currencies, did just as well as many centralized stablecoins.
Conclusion:
Overall, the DeFi ecosystem has developed well compared to last year. Last week’s stress test showed that decentralized finance can function without any problems despite high market volatility. In some areas, DeFi has even been shown to offer advantages in times of extreme volatility. Although these advantages cannot be used by everyone, especially on Ethereum, since the transaction fees are still far too high, the crash has once again shown the potential of decentralized finance.