Ethereum, the second largest cryptocurrency by market capitalization, is currently in a free fall. More than $124 billion in capital vanished from Ethereum (DeFi) decentralized funding in six weeks.
Seven months ago, ETH reached an all-time high of $4,891.70 on November 16, 2021. But it is now trading at around $1,100, which is 75.2% less than its all-time high.
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The start of 2022 was unstable for the cryptocurrency market, especially Ethereum, but in the previous weeks, things got more complicated. However, the larger cryptocurrency market continues to decline due to macroeconomic uncertainty fueled by an unstable stock market, rising interest rates, and fear of the crisis.
Ethereum DeFi Market Significantly Leverages
Glassnode, a blockchain analytics company, Report released On June 17. The report was titled “Davy’s Great Reduction”. The report stated that over $124 billion in capital has been drained in just six weeks from the Ethereum DeFi market. As a result, its market value is rapidly declining.
According to their statement, a wide range of margin calls, liquidations, and deleveraging were triggered by a wide variety of causes. These reasons include the tightening of monetary policy around the world, the increasing strength of the US dollar, and the declining values of risky assets.
Their analysis looks at some of the early warning signs that anticipate a drop in ETH usage and community demand after the all-time high in November 2021 for the value of ETH.
They claim that on-chain activity and Ethereum gas prices have been declining over a six-month period. This indicates a decrease in the overall Ethereum network activity.
As stated in the report:
Across many aspects of the Ethereum ecosystem, the demand profile has been waning, with overall app usage declining, network congestion waning after November 2021 ATH, and the cooling of the NFT market becoming evident in recent weeks.
TVL on Ethereum dropped by 60%
According to the report, Ethereum’s TVL (total value of all ether) has fallen by 60% in six weeks. The decline occurred in two stages. In May, the Terraforms Lab project collapsed, causing a loss of $94 billion. In June, ETH fell below $1,000, resulting in a loss of $30 billion.
According to the report, there were only two higher deleveraging events:
The first is -46.0% associated with the recent LUNA crash and -37.5% during the ATH heavy sale set in May 2021.
The combined market valuation of the four largest stablecoins USDT, USDC, BUSD and DAI exceeded the market valuation of ETH by $3.0 billion.
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Glassnode stated that the debt-reduction event that occurs is painful and similar to a mini-financial crisis. However, they added that while this is difficult, it provides an opportunity to get rid of excess leverage and rebuild healthily.
Featured image from Flickr and chart from TradingView.com