Typically, when the largest crypto assets fall, traders pull liquidity out of more speculative assets like those within DeFi to mitigate risk. That certainly played out last year, when bitcoin slumped 77% from its all-time high while several altcoins plunged by more than 95% from records.
However, DeFi has fared worse than ETH this year. ETH is up about 40% since December even as DeFi TVL has shrunk, suggesting DeFi's issues are specific to it, not its key token."Fundamentally, it's due to U.S. Treasury yields being up and DeFi yields, which are higher risk, giving lower rewards," Doo, co-founder of StableLab and Asia Lead at MakerDAO, told CoinDesk."When yields were increased to 8%, we saw DSR [Dai Savings Rate] deposits increase by four times.
"There is a wider issue with liquidity as well and this can be verified by looking at overall volumes of major decentralized exchanges," Doo added."Both Curve and Uniswap see lower trading volumes, which also translate to less liquidity and also interest in the market. It also leads to yields being lower, which reinforces such."