Ethereum, the second-largest cryptocurrency by market cap, is currently in free fall. Over $124 billion in funds disappeared from Ethereum (ETH) decentralized finance (DeFi) in six weeks.
Seven months ago, ETH reached an all-time high of $4,891.70 on November 16, 2021. But it’s now trading at around $1,100, less than 75.2% of its all-time high.
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The beginning of 2022 has been volatile for the cryptocurrency market, especially ETH, but in the first few weeks, things have become more complicated. However, the larger cryptocurrency market continued to fall as stock market volatility, interest rate hikes and fears of a crisis fueled macroeconomic uncertainty.
The Ethereum DeFi market is deleveraging significantly
Glassnode, a blockchain analytics company, published a report On June 17, the report was titled “The Great DeFi Deleveraging.” In just six weeks, the Ethereum DeFi market has seen more than $124 billion in outflows, according to the report. As a result, its market capitalization is rapidly deleveraging.
According to their statement, widespread margin calls, liquidations and deleveraging were triggered for a number of reasons. These reasons include tightening global monetary policy, a stronger dollar and a decline in the value of risky assets.
Their analysis looks at some early warning signs that predict a decline in ETH usage and community demand after ETH value hits an all-time high in November 2021.
They claim that on-chain activity and Ethereum gas prices have dropped in six months. This indicates a drop in overall activity on the Ethereum network.
As the report states:
In many aspects of the Ethereum ecosystem, demand conditions have been weakening, general application usage has declined, network congestion has eased after the November 2021 ATH, and the cooling NFT market has become evident in recent weeks.
TVL on Ethereum drops by 60%
According to the report, Ethereum’s TVL (Total Value of All Ether) has dropped by 60% in six weeks. The decline occurs in two stages. In May, the Terraforms Lab project collapsed and caused $94 billion in damages. And in June, ETH fell below $1,000, causing a $30 billion loss.
According to the report, there were only two large deleveraging events:
The first is -46.0% related to the recent LUNA crash and -37.5% related to the sell-off of the then ATH set in May 2021.
The combined market capitalization of the current top four stablecoins USDT, USDC, BUSD and DAI has exceeded ETH’s market capitalization by $3 billion.
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Glassnode said the ongoing deleveraging event is painful, akin to a mini-financial crisis. However, they added that while this is difficult, it offers an opportunity to remove overleverage and rebuild healthily.
Featured image from Flickr and chart from TradingView.com