DeFi and Decentralized Finance

DeFi TVL Rebounds: Signs of Recovery or a Temporary Bump?

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Decentralized finance (DeFi) is a fast-growing sector of the crypto industry that aims to provide various financial services and products without intermediaries or centralized authorities. One of the key metrics to measure the health and growth of DeFi is the total value locked (TVL), which represents the amount of crypto assets that are locked or staked in various DeFi protocols and platforms. More liquidity translates into an increased likelihood of the project being adopted, and vice versa, for a higher TVL.

In the past few months, the DeFi sector has experienced significant volatility and a decline in its TVL, mainly due to the bearish trend and sell-off in the broader crypto market.

According to DefiLlama, the TVL in DeFi reached an all-time high of $158 billion on May 12, 2021, but then plummeted to $50 billion on July 20, 2021, a drop of almost 70%. Since then, however, the TVL in DeFi has rebounded to $111 billion as of December 5, 2021, a recovery of 122%. What are the factors behind this rebound, and is it a sign of a sustainable recovery or a temporary bump?

There are several possible reasons for the recent increase in DeFi TVL, such as

 The recovery of the crypto market prices, especially ether (ETH), the native currency of Ethereum, which is the dominant blockchain for DeFi. ETH has risen by 42% since October 13, 2021, from $3,400 to $4,800, boosting the value of the assets locked in DeFi protocols. ETH is also used as collateral, gas fees, and rewards in many DeFi applications, making it a crucial driver of DeFi activity and demand.