Ethereum is in freefall, making it the 2nd-largest cryptocurrency market capitalization. More than $124 Billion in capital has been withdrawn from Ethereum (ETH) by Decentralized Finance (DeFi), in just six weeks.
ETH was valued at $4.891.70 in November 2021, seven months ago. It is currently trading at $1,100 which is below 75.2% from its historic high.
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Although the start of 2022 proved to be unstable, ETH and other cryptocurrency markets were able to recover. However, the crypto market remains smaller due to greater macroeconomic uncertainty, fueled in part by instability of the stock market and interest rate rises.
Deleveraging Is a Major Issue in Ethereum DeFi Market
Glassnode, an analytics company that specializes in blockchain, published a report June 17. The report was titled “The Great DeFi Deleveraging.” The report stated that over $124 billion in the capital had been drained out in only six weeks from the Ethereum DeFi market. Its market value has been rapidly deleveraging as a consequence.
Their statement stated that there are many factors which have led to a variety of liquidations and margin calls. This includes tightening global monetary policy, increasing strength of US dollars, and declining values of risk assets.
They analyze early warning signs to predict a decrease in ETH usage after November 2021’s all-time high in ETH value.
The claim was that Ethereum gas prices and on-chain activity had declined over the past six months. It indicates that overall Ethereum network activity has dropped.
The report states:
The Ethereum ecosystem has seen a decline in demand across many aspects. There have been some signs of a slowing down in general application use and network congestion.
TVL for Ethereum Has Dropped by 60%
According to the report, Ethereum’s TVL (Total Value of All Ether) dropped by 60% in six weeks. Two stages were involved in the decline. In May, the Terraforms Lab’s project collapsed and caused a $94 billion loss. In June, ETH dropped below $1,000, resulting a $30 billion loss.
The report shows that there were only two deleveraging events with a higher magnitude:
The second is -46.0% in connection with the recent LUNA fall and -37.5% during the sell-off at the May 2021 ATH.
The market value of all four top stablecoins USDT (USDC), USDC, BUSD and DAI combined has exceeded $3.0 Billion.
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Glassnode said that deleveraging is painful, and it is similar to a small-financial crises. They added, however, that while it is painful, this provides an opportunity for excess leverage to be eliminated and rebuilt healthily.
Featured Image from Flickr. Chart by TradingView.com
