Crypto-verse: Crypto-borrowers are facing a DeFi dubbing

A bitcoin representation is seen in an illustration photo taken at La Maison du Bitcoin in Paris, France, June 23, 2017. REUTERS / Benoit Tessier

June 21 (Reuters) – Crypto lending may not be down and out, but it’s definitely on the ropes.

Crypto-borrowers have flourished in the last two years, attracting tens of billions of dollars in bitcoin, ether and other coins which they in turn lent or invested, often in decentralized financial projects (DeFi) with sky-high returns. read more

But while the crypto markets are falling, DeFi activity is being hit particularly hard, robbing lenders of their most lucrative returns and threatening to push the entire sector – and reaching far beyond the Celsius Network, which made headlines last week when it froze withdrawals and transfers.

The total value locked (TVL) on ethereum, a calculation that attempts to track the value of tokens deposited in a series of DeFi protocols, has fallen by $ 124 billion or 60% over the past six weeks, according to data provider Glassnode.

The crash happened in two large crypto disks, $ 94 billion lost during the collapse of the LUNA project – involving the failed stablecoin TerraUSD – and another $ 30 billion in mid-June, said Glassnode, who attributed the fall to reduced risk appetite.

“Current market conditions have put enormous pressure on operators that interact with decentralized financial protocols to generate their returns,” said Mauricio Di Bartolomeo, co-founder and chief strategy officer for cryptocurrency lender Ledn.

BITCOIN VS ETHER VS DOLLAR

Similarly, an index tracking cryptocurrencies linked to DeFi lending / borrowing protocols and stock exchanges, from research firm Macrohive, fell 35% last week as investors raised money from the former high-flying sector.

Some DeFi protocols, or projects, are beginning to yield lower returns, with average lending and borrowing rates on one platform, Compound, down the week across all but one cryptocurrency, Stablecoin Pax Dollar, Macrohive found.

As a further sign of the decline, ether – the symbol that underpins the ethereum network on which many DeFi protocols operate – fell last week to its lowest level against major peer bitcoin in 14 months

Against the dollar, bitcoin has fallen 34% so far in June, while ether has lost over 40%.

The turmoil in this higher-yield segment of the crypto market raises questions about the sustainability of the high interest rates cryptocurrency lenders offer their customers, often in double digits.

TOO GOOD TO BE TRUE?

Some market participants say that crypto borrowers should make customers aware of the risk of projects their money is pumped into.

“I expect users to demand more transparency if their assets are managed in the DeFi area,” said Iakov Levin, CEO of the crypto investment platform Midas Investments. “Crypto needs to find a more transparent model for retail returns.”

New Jersey-based Celsius, with more than $ 11 billion in assets on its platform, cited market volatility when it suspended redemptions last week. A data trawl shows that investments were made in several DeFi projects that ended up in difficulties. read more

“The DeFi market will no doubt suffer from this development because it also deals with cryptocurrencies, and people will be more careful than ever to invest their assets in what they perceive as similar ecosystems,” said Yubo Ruan, founder and CEO of Parallel Finance, a decentralized lending protocol.

Ruan said that if projects “promise rewards that sound too good to be true – there’s always a chance they are”.

Reporting by Medha Singh and Lisa Mattackal in Bengaluru; Editing by Alun John and Pravin Char

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