Investors withdraw money from DeFi

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As soon as the initial shock after Terra’s fall subsides, DappRadar analysts believe that investors will stop withdrawing assets from DeFi and return to the traditional bearish strategy.

DappRadar posted a report stating that the total value of funds locked (TVL) in DeFi has dropped by more than 40% in seven days. The authors of the report put forward a version that the reason for the decline is caused by the conversion of cryptocurrencies into stablecoins with a further withdrawal into traditional currencies.

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The report states that the collapse of the stablecoin UST and the LUNA cryptocurrency of the Terra project has projected panic among investors in the DeFi market:

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“Amid serious concerns about Terra, UST and LUNA, traders seem to be spooked and are taking a large number of stablecoins out of the protocols.”

DappRadar experts believe that the market is experiencing a situation that is opposite to the dynamics of the previous bearish trend of 2018, when crypto lending protocols were in demand among investors. Analysts argue that the UST default has impacted DeFi lending as the stablecoin’s drop has raised concerns from investors and regulators about the viability of such assets.

The report states that the USDC Circle appears unaffected and has even traded briefly above its peg this week. DappRadar noted that USDC trading volume has surged over the past few days, peaking at nearly $25 billion on May 13. Typical volumes for a stablecoin are around $5 billion per day.

“The future of stablecoins has been questioned, but it is worth remembering that unlike UST, which is backed by cryptoassets, most stablecoins have more tangible support,” the authors of the report insist.

DappRadar believes that once the shock passes, traders will return to the market and use traditional bear trading methods. The authors of the report emphasize that lending has flourished throughout the last cycle, and such an effective tool as the provision of liquidity in exchange for a fee will be in demand as investors look for a safe store of value and hedge risks against the backdrop of global inflation.

At the same time, Chainalysis analysts warn that illegal activity in DeFi protocols has increased significantly compared to last year.

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Source: Cryptocurrency

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