The DeFi sector has seen its largest TVL decline since 2023

At the beginning of the week, the decentralized finance (DeFi) industry experienced its sharpest decline in TVL (total assets locked) in over two years. This decline was driven by a combination of institutional outflows and a weakening Bitcoin price. The BTC price fell below $100,000 again, increasing market caution. Against this backdrop, investors began actively reducing risk positions and locking in losses, leading to the market entering a phase of reduced liquidity.

Fees and Network Activity

Bitcoin network fees increased by 1.3% to $2.15 million, indicating moderate network usage. Meanwhile, Ethereum saw a 21.7% drop in fees, falling to $6.46 million. This decline reflects reduced base layer activity, but Ethereum remains a more heavily loaded network than Bitcoin.

Exchange Flows

Market trends are diverging between BTC and ETH. Bitcoin outflows totaled $1.09 billion, indicating continued long-term accumulation. This approach is typical during periods of uncertainty, when investors prefer to hold assets. Meanwhile, the Ethereum market saw an inflow of $230.39 million, suggesting partial profit-taking and a shift in short-term strategies.

DeFi TVL Drop

Total locked assets in DeFi fell 12.45% to $127 billion. This was the largest weekly decline since the start of 2023. Importantly, Bitcoin ETFs also saw some of the largest capital outflows since their inception, further exacerbating the market situation.

Systemic Risk and Its Consequences

Systemic risk in the DeFi sector has increased following a mistake by Stream Finance's fund manager, which resulted in a loss of $93 million. As a result, the protocol froze $285 million in user funds, triggering a sharp decline in related assets. The xUSD token lost its peg and fell in price to $0.1–$0.24, while the deUSD token also plummeted to $0.015 after the issuer halted operations.

In Conclusion

The DeFi market situation remains tense, and participants continue to monitor changes in liquidity and activity. The decline in TVL and systemic risks highlight the need for a cautious approach to investing in decentralized finance, especially amid the current uncertainty.