Sudden concerted drop in cryptocurrency prices in Q4 last year instigated same old judgments about the interdependence of all markets. As a result of that drop, the total cryptocurrency market capitalization declined from $2.86 trn to current proximities of $2 trn. In this article we argue that the decline wasn’t preemptively caused by the capital flows considerations, but mainly by accelerated development of DeFi environment that required more tokens to become locked out of market sight. Let’s study this phenomenon in detail.

With the explosion of decentralized finance (DeFi) and the increased usage of smart contracts, the best altcoins are tokens belonging to the best projects and companies in the blockchain space. During 2021 we contemplated such phenomenon as the gravity of major coins, i.e. their depletable ability to live up to their fundamentals at any given moment of time. But investors hailed the decentralization universe that is now considered the prime option of new valuable projects and ideas to receive quick funding. Investments more and more positioned themselves away from crypto trading and wallet holding into participation in IDOs in particular, and DeFis in general. Many DeFi tokens offer more than just speculative value; they have real revenues and great utility within the DeFi industry.

The rise of DeFi, high Ethereum fees and lucrative incentive programs have fueled the trend. So, once again, the catalyst for change was an explosion in demand for DeFi services. In 2021, Ethereum, the network where DeFi was born, saw total locked value (TVL) in its DeFi protocols rise from $16.1 billion at the beginning of the year to $101.4 billion as of November 30. Although the value of the fourth quarter 2021’s total market cap loss was much bigger, we must account for widely adopted credit leverage in DeFi funding.

As we know, Value Locked is an indicator to evaluate the adoption scale of a DeFi project by calculating the total value (in USD) of all ETH and other ERC-20 tokens locked in the corresponding smart contracts. Net Value Locked excludes assets that are double-counted in multiple protocols. But while Ethereum essentially had a monopoly on DeFi at the start of the year, by the end of last month its share of Defi TVL had fallen to 63%. One reason is that Ethereum’s transaction fees jumped to record highs during the first half of the year, and DeFi enthusiasts began looking for cheaper alternatives.

Ethereum’s network value locked in smart contracts (TVL) increased nine-fold to $155 billion. Ether’s current $370 billion market capitalization makes it one of the world’s top 20 tradable assets, right behind the two-century-old Johnson & Johnson conglomerate.

Data from crypto market intelligence firm Messari shows that over the past 30 days, 5 out of the top 10 DeFi protocols have seen their tokens post double-digit gains.

Source: Footprint Analytics

Further evidence of the building momentum in the DeFi space can be found by looking at various metrics within the ecosystem. These metrics include active users as well.

Source: Dune Analitics

According to data from Dune Analytics, the number of unique users in DeFi has continued to climb higher over time and is currently at a record high of over 4,305,000 unique wallets. The activity shown on decentralized exchanges (DEX) has also been on the rise over the past few months. Data from Dune Analytics shows that May 2021 was the only month with a higher DEX trading volume than was seen in November and December 2021. According to data from Defi Llama, the current TVL for all of DeFi grew to $256 billion, just $3.5 billion lower than its all-time high of $259.41 billion which was set on Dec. 2, 2021.

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