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The DeFi Sector Could Experience a Shakeout in 2022 Fueled By Liquidation -Breaking

by Mike Robinson

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In 2022, the DeFi sector could experience a shakeout due to liquidation

Decentralized finance (DeFi), which has been experiencing a robust run ever since 2020’s summer, saw the total value of all DeFi protocols (TVL) reach over $290 Billion in December 2021.

The recent cryptocurrency market crash was the first ever crypto winter. It has had a severe impact on decentralized financial protocols. DeFi Protocols have experienced steeper corrections, even though it is still more than half of its historical high.

AAVE has fallen 77% since its ATH. Compound is now down by 85% and MakerDAO, by 71%. Their declines have caused the TVL (TVL) of the defi business to drop to $225billion. This is more than $30billion less since the start.

The Strong Liquidations of DeFi are Now a Reality

Dune Analytics reports that more than $300,000,000 worth assets were pulled from DeFi protocols in the week ended January 22nd.

Further, the firm’s blockchain research reports that more than 1,000 positions have been liquidated on platforms like MakerDAO and Aave between January 22-24.

In the last 2 weeks, activity on DApps popular has dropped 20-30%. DeFi protocols are experiencing strong liquidations, departures of developers, and exodus, in addition to poor native token performance.

DeFi protocol developers are paid in tokens. This has caused many developers to leave.

Pedro Herrera is a senior analyst with DappRadar and estimates that 80% of current dApps may be wiped out of the market, provided the downtrend continues for at least a year.

The Flipside

  • Experts believe that the first crypto winter is the beginning of a new era in finance, even though the sector’s reaction has been negative.

Why you should care

Jeff Dorman from Arca explained that despite strong liquidations, there were no issues for users to get money out protocols. He believes this validates DeFi’s claim of being the future of finance.

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