Ethereum (ETH) staking has witnessed a robust surge through platforms like Lido and Coinbase’s staking service, even as the value of assets in the Decentralized Finance (DeFi) sector faces a decline. In the past year, the cryptocurrency landscape has encountered several challenges, including failures in centralized exchanges and services, resulting in capital outflows from the DeFi arena.
DefiLlama data reveals a stark picture, with the Total Value Locked (TVL) in DeFi protocols across various chains currently standing at under $38 billion. This marks a significant drop from the sector’s peak in November 2021, when the TVL surged to $178 billion.
TVL Lags Behind Post-FTX Collapse Levels
Interestingly, the present TVL figure falls even below the levels observed shortly after the collapse of the centralized exchange FTX in November 2022, causing a two-year low in assets locked in DeFi protocols. Despite a recovery in April, where TVL reached about $50 billion, the metric has retraced below $38 billion since then, despite the relative stability of underlying crypto values during this period.
Notably, this tally does not encompass funds within liquid staking protocols like Lido. Since the FTX incident, Lido’s TVL has soared from $6 billion to $13.95 billion. Such protocols, referred to as “deposit into another protocol,” are excluded from the total TVL calculation. Similarly, Coinbase’s staking service, launched in September 2022, has accrued an additional $2.1 billion worth of Ethereum, contributing to a total of $20.2 billion held by such services.
Lure of Liquid Staking
Liquid staking permits investors to stake their assets and earn yield while retaining trading liquidity via pegged assets from staking providers, such as cbETH and stETH. This alternative might be more appealing to investors compared to lending protocols like Aave, which necessitate token locking and exposure to protocol risks. Aave’s ETH and USDC yield rates are currently 1.63% and 2.43%, while Coinbase offers more enticing rates of 3.65% for ETH and 4.5% for USDC.
Factors Behind DeFi’s TVL Decline
The recent decline in TVL for various DeFi platforms is significant. Aave’s TVL has plummeted by 21% to $4.5 billion, and Curve Finance saw a 26% drop to $2.3 billion. One potential contributor to this trend could be the United States Federal Reserve’s hawkish monetary policy, driving higher yields on short-term government debt, potentially diverting investor attention from stablecoin yields within DeFi.
Ethereum staking’s upward trajectory contrasts with the DeFi sector’s contraction. Factors such as liquid staking’s appeal and macroeconomic influences may underpin these trends, shaping the dynamics of the crypto landscape.
