DeFi Ecosystem Lost $156 Billion In Total Value Locked In Q2 2022


The cryptocurrency space has lost a great deal, especially with Bitcoin posting its worst quarterly performance in 11 years. Away from the price and the allure of market valuation, which are both already very beaten down, we see that data provided by DeFi Llama reveal that the Decentralize Finance (DeFi) ecosystem lost 68.13% representing $155.79 billion in Total Value Locked (TVL) in the second quarter of 2022.

The TVL is a measure of performance in the DeFi space. It measures the total value of cryptocurrencies that users “lock up” in various lending and staking protocols.

It measures the commitment of cryptocurrencies locked up in a smart contract for any project, in a liquidity pool for lending or staked in a blockchain node for mining crypto that uses a proof-of-stake (PoS) consensus method. TVL is widely used to measure the health of a cryptocurrency.

The decline in the space in hindsight is majorly a result of the collapse of the Terra blockchain and the fall of the blockchain’s native token, LUNC and its algorithmic stablecoin USTC. Other factors contributing to the downfall are the decline seen in the price and capitalization of cryptocurrency space as a result of the effect of contractionary monetary policies seen across the globe.

The TVL started the quarter at $228.66 billion and ended at $72.87 billion, representing a 68.13% loss seen in the quarter. The first quarter of the year saw a marginal decline of 2.92%, from $235.53 billion.

DeFi Ecosystem Lost $156 Billion In Total Value Locked In Q2 2022

In the first half of the year, as with the prices of crypto assets, their valuation and the interest in the space, the TVL has lost 69.06% representing $162.66 billion Year-to-Date (YtD).

May accounted for the most decline seen in the last three months, as the TVL dropped by $89.84 billion in the month, which accounts for 57.66% of the TVL loss we have seen in the second quarter of 2022.

The major reason we saw such a huge amount lost in the TVL is majorly due to the collapse of the Terra Blockchain. At peak value, the Terra Blockchain had a TVL of $31.35 billion on the 6th of April 2022.

Between May 5th and May 16th, the Terra Blockchain lost 98.23% of its TVL as the fall of its programmable stablecoin, USTC, dragged the entire ecosystem into ruin as investors lost faith in its creators. This amount represents 20.12% of the TVL lost during the quarter.

The major reason for the Terra blockchain collapse was the inability to keep up with high yield payments, which brought about a ponzi mechanism into the blockchain ecosystem that involved its native token and programmable stablecoin.

When the Terra blockchain still had its hype, holding UST gave a passive income opportunity to investors to earn up to 20% APR, which was found unsustainable. Holders could gain passive income using TerraUSD with the Anchor protocol’s stable interest rates. Anchor protocol is a lending and borrowing protocol built on the Terra blockchain.

At peak value, Anchor Protocol accounted for $17.15 billion of the Terra Blockchain TVL, which represented 54.70% of the TVL of the entire Terra ecosystem.

Asides from this, during the quarter, we saw the entire cryptocurrency market capitalization lose 58.77% of its value from $2.09 trillion to stand at $861.50 billion at the end of the second quarter.

The decline was as a result of worrying macro-economic numbers like the U.S. inflation numbers at a 40-year high, which forced and called into action, contractionary monetary policies that ultimately saw risker assets like cryptocurrencies and stocks less attractive.

During the quarter, we saw Bitcoin fall below $20,000 to trade as low as $17,000. We also saw Ether trade in triple digits. The sell-off was further intensive as news of various trading and lending platforms like Celsius and Three Arrow Capital (3AC) facing insolvency issues, which saw a majority of people sell of their crypto assets.