Back in 2021, the decentralized finance (DeFi) space experienced explosive growth which led to a rapid rise in total value locked (TVL). The TVL would continue to grow into 2022 and maintain a decent level even through the initial bear market triggered by the Terra collapse. However, the glory days are long over now and the DeFi TVL is barely holding up, to say the least.
DeFi TVL Crashes 78% In One Year
January 2022 was arguably one of the best months for the DeFi TVL when the metric rose to its highest level. At this point, there was over $212 billion worth of tokens locked across various decentralized finance protocols.
However, the same month would record one of the largest crashes in the TVL when it fell to $159 billion by January 31, 2023. This crash marked the end of an era for the sector as TVL would continue to plummet throughout the year 2022, exacerbated by the crashes of the likes of Terra and Celsius, and eventually FTX.
Fast forward to 2023 and the DeFi space has had a hard time keeping up. The further decline in TVL has brought it to one-year lows with the metric now sitting at $43.45 billion, translating to an 80% drop from its all-time high. This figure is also in line with the general bearish theme of the year with the highest the TVL has been in 2023 being $64 billion.
Falling prices across the space were a contributing factor to the decline, in addition to multiple protocols being exploited so far. Even though the rate of exploits is said to have slowed down in 2023, the likes of Multichain still lost $126 million. Curve also succumbed to an exploit that saw the attacker make away with over $60 million, although a good portion of the lost funds have since been reclaimed.
Can Decentralized Finance Ever Recover?
Like the rest of the crypto industry, the decentralized finance sector is suffering the effects of the stretched-out bear market that began in 2022. So as prices fall, so does the dollar value of the TVL. However, when looking at other metrics like tokens staked, it paints a different story.
A good example of this is the total number of ADA locked on the Cardano network hitting new all-time highs in 2023. It went from 424 million ADA locked in May 2022 to over 724 million locked in August 2023. But because the price of ADA is down more than 91% from its ATH, its TVL in terms of dollar value shows an over 50% decline since May 2022.
Given this, the DeFi space is expected to thrive once more under more favorable market conditions. A bull market and token prices returning rising above their all-time high prices will likely see the DeFi TVL return to its past glory.