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Cryptocurrency Market Update: DeFi Sector Faces Declines
Stay informed with the latest updates on the cryptocurrency market. Explore the challenges faced by the DeFi sector as it experiences declines in this comprehensive report.
Cryptocurrencies in the decentralized finance (DeFi) sector experienced a significant downturn this week, with the CoinDesk DeFi Index recording a 9% drop from its Monday high, contrasting with the 5% decline in the broader CoinDesk 20 benchmark during the same period.
Leading the downward trend was the governance token of Pendle, a DeFi protocol offering crypto yields through tradable tokens, which plummeted by over 20% in Tuesday and Wednesday trading sessions. Short positions accumulated as investors anticipated further declines.
The protocol witnessed a substantial $3 billion decrease in the total value of assets locked (TVL) on the platform, as highlighted by data from Defillama. Analysts attribute this decline to users withdrawing funds from the protocol instead of renewing their positions following the expiration of the lock-up period at the end of June. Pendle had previously experienced a surge in value due to airdrops and farming incentives, which have recently tapered off.
“Yields aren’t very attractive for future pools at the moment, prompting users to withdraw rather than reinvest,” stated Rob Hadick, general partner at venture capital firm Dragonfly.
Despite the recent setbacks, there is optimism surrounding upcoming collaborations such as the Symbiotic-Ethena-Mellow partnership, which is expected to attract fresh capital inflows, according to Joshua Lim, co-founder of principal trader Arbelos Markets.
Other major DeFi lending platforms, including Aave (AAVE) and liquid staking protocol Lido (LDO), also experienced significant declines of 10%-15% during the same period. Notably, a large crypto investor transferred $6.2 million worth of LDO and $4.5 million in AAVE to crypto exchange Binance, likely for selling purposes, as indicated by observations based on blockchain data from EtherScan.
The DeFi sector’s challenges coincided with a period of consolidation in the broader crypto market, with bitcoin (BTC) and Ethereum (ETH) trading within a range below their March peaks. ETH, the second-largest cryptocurrency, has retraced about 6% from its Monday highs and has largely nullified its gains since the surge in odds for regulatory approval for U.S. spot ETFs in late May.