A fresh study, on ‘Decentralized Finance (DeFi)’, has been compiled by Hashkey Capital and published as part of its annual report.
The study reveals astonishing findings which suggest that as compared to conventional finance, DeFi is more accessible.
Most importantly, the study notes that DeFi is better than traditional finance for so many reasons.
For instance, the study findings reveal that DeFi protocols possess more strength than the resilience found in traditional finance. Similarly, DeFi protocols are less likely to inflict any potential harm stemming from black swan events.
For instance, a major DeFi-associated project namely Terra Luna was destroyed as it couldn’t survive the crypto market meltdown. However, DeFi inflicted almost zero negative impact from Terra Luna’s collapse.
Global Reduction in DeFi Economy
Though DeFi may be conveniently accessible yet its economy i.e. the Total Value Locked (TVL) is declining on an alarming level.
However, Hashkey Capital’s study admitted that 2022 was mostly dominated by hostile market conditions which resulted in massive TVL reduction.
Generally, the market conditions throughout the year were deteriorating primarily because the cryptocurrency economy was shrinking.
Collateral Volume and Value Reduction
Bitcoin was ripped off by at least 75% value while others followed Bitcoin in accruing similar or even worse value declines.
While DeFi TVL was ripping in the initial days of the crypto meltdown, yet the value of DeFi collateral (i.e. cryptocurrencies) was declining frequently.
Hence, subsequently, with the shrinking of the global crypto economy, DeFi’s TVL also started to decline.
On the other hand, crypto trading volumes at decentralized crypto trading and exchange platforms were greatly reduced. This reduction in crypto trading volume was yet another reason for the lessening of DeFi’s TVL.
Peak Time of DeFi TVL
A year ago, exactly in December 2022, the time when the DeFi sector was at its highest peak ever. Though relatively fresh even at that time the sector was able to achieve TVL exceeding $180 Billion.
Thereafter, the meltdown accelerated and by the time DeFi reached May 2022, its TVL had been reduced to $150 Billion. In October, global TVL was recorded at less than $50 Billion.
Irrespective of this reduction, there were some sectors within DeFi that managed to keep on optimistically.
DeFi Growth Curtailed
Hashkey’s study also takes note of the trimming of DeFi growth which declined from 545% to just 31% since December 2021 to date.
The compiler of the study explains that the year 2022 was the time when projects were trying to improve their services. In this improvement, they even avoided spending monies on product and service promotions.
Hence, DeFi projects were able to provide an immersive experience to their users in the departing year. Resultantly, DeFi protocols became so accessible that borrowing was as easy as somebody using a banking app at home.
Instrumental in Driving Crypto out of The Crisis
A major push to the DeFi sector was however provided by venture capital firms. They collectively brought into TVL approximately $14 Billion from January to June 2022.
In the second half of 2022, platforms such as GMX were able to draw more funds in the global TVL. GMX subsequently raised its contribution to the global TVL from $108 Million to $480 Million.
While cryptocurrencies are still in jeopardy but experts believe that DeFi has great scope in the future.
Hashkey predicts that perhaps DeFi’s accessibility could be instrumental in driving the crypto market out of the present crisis.
No matter what the traditional financial firms or entities may claim, the DeFi industry is here to stay and it will continue expanding.
The industry has been around for a while and it is constantly gaining worldwide adoption. It is only a matter of time before people realize the importance of having full privacy when being online.
The decentralized finance technology does not bind the users with traditional formalities or the provisioning of documents when asking for loans and services.
This is the best utility that the DeFi industry has to offer and it will help expand the entire sector.