Ethereum, the second largest cryptocurrency by market capitalization, is currently in freefall. More than $124 billion in capital disappeared from Ethereum (ETH) decentralized finance (DeFi) in six weeks.
Seven months ago, on November 16, 2021, ETH reached its all-time high of $4,891.70. But it is now trading at around $1,100, which is less than 75.2% of its all-time high.
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The start of 2022 was volatile for the cryptocurrency market, especially ETH, but in the past weeks, things have gotten a lot more complicated. However, macroeconomic uncertainty driven by volatile stock markets, rising interest rates, and fear of a crisis continues to wreak havoc in the larger crypto market.
Ethereum DeFi Market Is Delivering Dramatically
Blockchain analytics firm Glassnode released a report on June 17th. The report was titled “The Great DeFi Delivering”. The report states that over $124 billion in capital was withdrawn from the Ethereum DeFi market in just six weeks. As a result, its market value is rapidly declining.
According to their statement, a wide range of margin calls, liquidations and deleveraging have been initiated due to several reasons. These factors include tightening of monetary policy around the world, the increasing strength of the US dollar and the declining value of risk assets.
His analysis looks at some early warning signs that predict a decline in ETH usage and community demand after the November 2021 ETH price all-time high.
He claimed that the on-chain activity and the price of Ethereum gas have come down in six months. This indicates a decline in overall Ethereum network activity.
As stated in the report:
In many aspects of the Ethereum ecosystem, the demand profile is declining, general application usage has declined, and network congestion has eased after November 2021 ATH, and the cooling of the NFT markets has become apparent in recent weeks. .
TVL on Ethereum down by 60%
According to the report, Ethereum’s TVL (the total value of all Ether) is down 60% in six weeks. The decline occurred in two phases. In May, the Terraforms Lab project collapsed and caused $94 billion in damages. And in June, ETH fell below $1,000, resulting in a loss of $30 billion.
According to the report, only two high magnitude deleveraging events have occurred:
The first -46.0% is associated with the recent LUNA collapse and -37.5% during the selloff from the then ATH set in May 2021.
The combined market valuation of the top four stablecoins of USDT, USDC, BUSD and DAI now exceeds the market valuation of ETH by $3.0 billion.
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Glassnode said the deleveraging event is painful and akin to a mini-financial crisis. However, he added that although it is difficult, it provides an opportunity to eliminate excess leverage and rebuild healthy.
Featured image from Flickr and chart from TradingView.com