Ethereum, the second largest cryptocurrency by market capitalization, is currently in free fall. More than $124 billion of capital has disappeared from decentralized finance (DeFi) Ethereum (ETH) in six weeks.
Seven months ago, on November 16, 2021, ETH hit its highest ever value of $4,891.70. But it is now trading at around $1,100, less than 75.2% of its all-time high.
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The start of 2022 has been volatile for the crypto market, ETH in particular, but things have gotten a lot more complicated in the previous weeks. However, the larger cryptocurrency market continues to fall due to macroeconomic uncertainty caused by the volatile stock market, rising interest rates and fear of a crisis.
Ethereum DeFi Market Sharply Reduces Leverage
Glassnode, blockchain analytics company, issued a report June 17. The report was titled “The Great DeFi Leverage.” The report states that over $124 billion of capital has been withdrawn from the Ethereum DeFi market in just six weeks.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 were caused by many reasons. These reasons include monetary tightening around the world, the strengthening of the US dollar and the decline in the value of risky assets.
Their analysis looks at some of the early warning signs that predict a drop in ETH usage and community demand after ETH’s all-time high in November 2021.
They claimed that network activity and Ethereum gas prices have declined in six months. This indicates a decrease in overall Ethereum network activity.
As stated in the report:
In many aspects of the Ethereum ecosystem, the demand profile is easing, with overall application usage declining, network congestion declining after ATH in November 2021, and a cooling of NFT markets becoming apparent in recent weeks.
TVL on Ethereum fell by 60%
According to the report, the TVL (Total Value of All Ethereum) of Ethereum fell by 60% in six weeks. The fall took place in two stages. In May, the Terraforms Lab project collapsed, resulting in a loss of $94 billion. And in June, ETH fell below $1,000, resulting in a loss of $30 billion.
According to the report, there were only two larger deleveraging events:
The first of these -46.0% is due to the recent collapse of LUNA and -37.5% during the then-ATH sell-off set in May 2021.
The combined market value of the four largest stablecoins USDT, USDC, BUSD and DAI exceeded the market value of ETH by $3.0 billion.
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Glassnode said the ongoing deleveraging event is painful and looks like a mini-financial crisis. However, they added that while it is challenging, it provides an opportunity to eliminate excess leverage and recover in a healthy way.
Featured image from Flickr and chart from TradingView.com
Credit : www.newsbtc.com