The field of DeFi is less valuable than ever, how long will this situation last?

According to DeFiLlama data, the total value locked (TVL) in the DeFi ecosystem has experienced a significant decline over the past year, falling from over $150 billion to approximately $38 billion. Several factors have contributed to the decline in the total locked-in value of the DeFi ecosystem. One of the significant factors is the change from what is called traditional DeFi platforms to liquid staking protocols. Liquid staking is a method in which a separate protocol performs the tokenization of deposits without the need for trust confirmation. This method is also known as the non-custodial method. Extensive market changes, including the decrease in transaction volume and constant concerns about security issues in the DeFi space, have also played an important role in this decline. Hacks and exploits targeting vulnerable DeFi protocols have raised concerns about the safety of assets in the ecosystem. In addition, the decline in the price of digital currencies, such as Ethereum (ETH), has also fueled the decline in total locked-in value.

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In the 2021 bull market, high total locked-in figures were often linked to unstable yield offers in less liquid cryptocurrencies. When the market crashed, early participants sought to withdraw and sell liquidity-providing assets to avoid their losses, leading to lower annual returns and more withdrawals to avoid permanent losses.
Barney Mannings, one of the founders of the Vega Protocol, emphasized that previous high returns in the DeFi ecosystem were largely artificially inflated and unstable. Real returns in this ecosystem rely on transaction fees, but the decrease in transaction volume has led to a decrease in returns. Additionally, risk-free global central bank interest rate hikes and economic uncertainty have forced people to choose safer investment options over riskier options in the DeFi space. Mannings also pointed out that security vulnerabilities and breaches in the DeFi sector have fueled a decline in user confidence.