Home ยป Ethereum Staking Thrives as DeFi Asset Values Decline

Ethereum Staking Thrives as DeFi Asset Values Decline

Staking gains momentum while DeFi assets experience a downturn, potentially influenced by decreased incentives due to high staking yields.

by Isaac lane
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The popularity of Ethereum staking has surged, but the value of assets within decentralized finance (DeFi) protocols is witnessing a persistent decline. Recent data reveals that investors might be finding less motivation to engage with other DeFi platforms due to attractive staking yields.

DeFiLlama data indicates a remarkable drop in locked assets across various chains, with the total value within DeFi protocols plummeting from its peak of $178 billion in November 2021 to under $38 billion. Notably, approximately $21.8 billion of this remaining value is held within Ethereum protocols.

This decline even falls short of the nearly $40 billion total value locked (TVL) recorded shortly after the collapse of centralized exchange FTX in November 2022. This event caused a significant reduction in assets locked within such protocols. Despite crypto market fluctuations, the TVL briefly bounced back to around $50 billion in April but has since retreated below $38 billion.

It’s important to note that the mentioned figure excludes funds locked in liquid staking protocols like Lido, which has doubled its TVL from $6 billion to $13.95 billion post the FTX incident. Coinbase’s staking service, launched in September 2022, has also accumulated $2.1 billion worth of ETH. In total, such services hold an additional $20.2 billion in assets.

Liquid staking presents an attractive option for investors, offering both yield from staking and trading liquidity through pegged assets. This could overshadow the appeal of lending protocols like Aave, which entail locking tokens and potential protocol risks. Currently, Coinbase’s staking rates outperform Aave’s yield rates with 3.65% for ETH and 4.5% for USDC.

Aave’s total value locked has dipped by 21% in the past month to $4.5 billion, and Curve Finance has also experienced a 26% decline to $2.3 billion. Beyond the realm of DeFi, the US Federal Reserve’s hawkish monetary stance has driven up yields on short-term government debt, potentially attracting investors more than stablecoin yields.

In summary, Ethereum staking is gaining traction, impacting the utilization of other DeFi protocols as their asset values dwindle. This shift is possibly due to the allure of higher staking rewards and increased accessibility to trading.

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