Crypto Lending Sector Shambles as Crypto Crash Worsens

Updated:

Crypto lending platforms have come under intense strain with the recent market crash as tensions build. Crypto lending protocols recorded a meteoric rise over the past two years, raking in billions of dollars in valuable digital assets, which they then lent out or invested in highly-lucrative DeFi projects.

However, following the persisting market woes, DeFi activity has plummeted significantly, putting lenders in a precarious position as their lucrative returns get trapped. This unfortunate development threatens to cave the entire sector, far beyond Celsius, which was on the headlines last week for halting withdrawals and transfers.

At press time, the total value locked (TVL) on the Ethereum Blockchain has slumped by $124 billion or 60% in the last six weeks, according to a report by on-chain data provider Glassnode.

Glassnode detailed that the recent crypto crash occurred in two batches: the first involving a $94 billion loss after the Terra meltdown and another $30 billion from the Celsius panic in June. The on-chain data platform noted that these negative developments contributed significantly to the floor-level risk appetite in the market.

Crypto Lending Protocols Under Intense Pressure

Explaining how the market crash has affected the DeFi space, Mauricio Di Bartolomeo, chief strategy officer of crypto lender Ledn, noted:

“The current market conditions have put an enormous amount of pressure on operators that interact with decentralized finance protocols to generate their yield.”

Meanwhile, Macrohive recently reported that an index tracking crypto tokens linked to DeFi lending and borrowing protocols plunged by over 35% last week as investors fled from risky assets.

To understand just how bad things have gotten for the once high-flying sector, some DeFi protocols are offering lower returns with average lending and borrowing rates on Compound, one of the largest DeFi protocols, down on the week across almost all cryptocurrencies.

 

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Azeez Mustapha

Azeez Mustapha is a trading professional, currency analyst, signals strategist, and funds manager with over ten years of experience within the financial field. As a blogger and finance author, he helps investors understand complex financial concepts, improve their investing skills, and learn how to manage their money.