The past week was challenging for cryptocurrencies in the decentralized finance (DeFi) sector, experiencing more significant losses compared to the broader crypto market. The CoinDesk DeFi Index dropped by 9% from its Monday high, while the CoinDesk 20 benchmark declined by 5% during the same period.
One of the notable decliners was the governance token of Pendle, a DeFi protocol offering crypto yields in tradable tokens, which plummeted by over 20% in the Tuesday and Wednesday trading sessions. This steep decline was accompanied by a substantial $3 billion reduction in the Total Value Locked (TVL) on the protocol, as reported by Defillama data.
Market analysts attributed the TVL drop to users withdrawing funds from the protocol instead of renewing their positions following the lock-up expiry at the end of June. Despite this setback, there is optimism surrounding Pendle due to upcoming partnerships like the Symbiotic-Ethena-Mellow collaboration, expected to attract new capital inflows.
In addition to Pendle, tokens of major DeFi lending platforms such as Aave (AAVE) and liquid staking protocol Lido (LDO) also saw significant declines ranging from 10% to 15% over the same period. A large crypto investor recently transferred substantial amounts of LDO and AAVE tokens to Binance for potential selling, contributing to the downward pressure on these assets.
The challenges faced by the DeFi sector coincided with a period of consolidation in the broader crypto market, with flagship cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) trading below their recent peaks. ETH, the second-largest cryptocurrency by market capitalization, has retraced about 6% from its Monday highs, partly due to regulatory uncertainties surrounding U.S. spot ETF approval.
Overall, the DeFi sector’s recent struggles highlight the volatility and interconnectedness of the cryptocurrency market, where individual protocol performance can have ripple effects across the ecosystem. Investors and analysts are closely monitoring developments in DeFi projects and regulatory landscapes to gauge the sector’s resilience and long-term prospects amid evolving market conditions.