In mid-February, the total value locked in decentralized finance (DeFi) was around $1.2 billion. That number is now around $500 million.
Decentralized finance (DeFi) has been all the rage in the past few months. Dominated by Ethereum (ETH), it still remains popular. However, the recent crisis has demonstrated that the idea suffers a serious trust issue – and many of its users have recently been opting out entirely.
Locked Funds in DeFi Plummet
DeFi has had a difficult month thus far. Although starting the month with some $900M or so locked in its smart contracts, it is now somewhere around $500M at the time of writing. This is a drastic drop from its all-time high of some $1.2 billion.
— CR1337 (@cryptonator1337) March 18, 2020
DeFi, which is mainly on Ethereum (ETH), has suffered from some substantial issues in the past few weeks as well. As BeInCrypto reported, one dApp suffered an exploit which saw some 1,193 ETH stolen. The global market rout has not helped either: as investors run for the door to secure liquid cash, many DeFi contracts are having a hard time enforcing themselves. This has led some critics, like Litecoin’s controversial founder Charlie Lee, to call it a form of “decentralization theater.”
This may be the biggest test for DeFi thus far. However, some maintain it is still too early to pass judgment on this still-young sector. The coming months will nonetheless be the defining moment for the DeFi ecosystem and decide whether it is mature enough to be viable in today’s financial world.
Could DeFi Be Saved?
Dreams of decentralized finance might need to be put on hold until the global market crisis subsides. Frankly, investors are not keen on taking risks with DeFi if even safe financial instruments are struggling today. With the coronavirus pandemic expected to drag on for weeks, DeFi may undergo a long winter. This is also the perfect time for it to reinvent itself.
Early predictions of DeFi going ‘parabolic’ this year are definitely now off the mark. After all, the coronavirus black swan event threw a wrench in everyone’s predictions. DeFi is far from dead – but it does need to build up trust if it wants to remain viable for years to come.
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