The total value locked in decentralized finance platforms dropped 16% to $54.4 billion this week, but the quick rebound in DeFi token prices shows traders are not dismayed.
Decentralized finance and the numerous platforms offering investment services have been the talk of the cryptocurrency sector for several months, and this has resulted in investors capturing spectacular gains for some of the top DeFi tokens like Uniswap's UNI and AAVE.
The fast-moving prices and 1,000% annual percentage yield on staked tokens elicited cheers from investors when the market was going up, but the recent selling pressure seen as Bitcoin's (BTC) price dropped below $45,000 shows that the highest fliers are often the quickest to fall as traders rush to exit their positions and lock in their gains.
On Feb. 22, Bitcoin's price entered a sharp corrective phase that saw the top digital asset pull back by more than 20% from its all-time high of $58,274. As this occurred, the majority of altcoins also saw double-digit corrections, and DeFi tokens like PancakeSwap's CAKE fell as much as 55%.
Total value locked in DeFi shows resilience
The total value locked (TVL) in DeFi platforms also took a hit as Bitcoin and altcoins corrected. Data from DeFi Llama shows the combined TVL of all DeFi platforms fell from $64.89 billion to $54.22 billion on Feb. 24. Cointelegraph also reported that this week's correction led to the second-largest day of DeFi loan liquidations in history.
The decline in TVL is a result of decreasing token values rather than protocol outflows, indicating that tokenholders remain committed to the continued expansion of decentralized finance and that the current yields are still incentivizing investors to remain engaged.
The same goes for the DeFi sector, which has been in a strong uptrend since the start of the year. Increasing DEX volume and as a rising TVL show that DeFi is still in the early stages of growth, and while pullbacks are to be expected, the overall trend is positive as institutional and retail investors increasingly gain exposure to this emerging asset class.