Decentralized Finance & Cryptocurrencies Begin to Recover from Early 2022 “Crypto Crash”
Written By: Hadley DiFiore
Reviewed by: Ralph DiFiore (CCO)
Decentralized finance (DeFi) has been massively successful in disrupting common conceptions about what is and isn’t possible when it comes to financial institutions. Through the use of a blockchain network, the creators of the software seek to eliminate the need for traditional financial institutions like banks. 2021 was a big year for DeFi, with the end-of-year estimated market cap for the top 100 publicly traded coins skyrocketing past the already high prices from the so-called “DeFi summer” of 2020 as they reached almost $175 billion. However, a recent crypto crash has made cryptocurrencies, and DeFi by association, plummet in value.
As of January 29, more than $1.2 trillion of the digital currency market’s value has been lost since its peak, according to TheStreet. Big names in decentralized finance like Uniswap, Have, and Avalanche are all suffering the effects of the crypto crash, with Uniswap’s value decreasing 77% since may. Growing skepticism and security concerns have fueled DeFi’s decline in value.
Additionally, Russia’s proposal to blanket ban cryptocurrencies has had a major impact on the crypto space. As the third-largest Bitcoin mining hub, Russia’s consideration of a crypto ban has sent prices downward as fears about other potential bans heat up. Russia’s concerns about cryptocurrency, such as financial stability risks and potential for illegal use are universal among crypto critics, adding fuel to the fire.
Concerns about the lack of security and consumer protection in the cryptocurrency space has also sparked a massive sell-off of cryptocurrencies as investors pull their money from the DeFi space and back into traditional assets and currencies. With no central authority to regulate the DeFi ecosystem, hacks and scams have left victims out millions of dollars in bitcoin. Critics say that, in its current state, DeFi “cannot really work without government involvement.” This has led many to question the potential of decentralized finance, at least in the short term.
In spite of the crash, crypto proponents say that the benefits of cryptocurrency and DeFi outweigh the risks. Many veteran crypto enthusiasts say that the 30% decrease in crypto’s market value is nothing to worry about, given the long-term bull market that’s been in play for years. As of early February 2022, the DeFi market is back on the rise. The price of Ethereum, which serves as a base for most DeFi applications, has risen over 24% since the mid-January crypto crash. Avalanche, a competitor to Ethereum with similar functionality, has begun to rebound as well, hitting a weekly high of $97.01 in the early hours of February 16.
Concerns over scalability have also begun to be addressed by platforms like Ethereum and Avalanche, with the latter introducing “Subnets” to help ease the strain that increased activity has put on the system. While skeptics are still unsure about the future of crypto, investors have already exhibited that their interest in DeFi spaces is rebounding.
Despite DeFi and crypto’s losses in early 2022, there is still huge interest in the potential of cryptocurrency. With the values of big names on the rise once again, many proponents say 2022 will be another huge year for decentralized finance and cryptocurrency.
Sources:
https://decrypt.co/93038/avalanche-price-hits-weekly-high-amid-increased-defi-activity
https://www.coinbase.com/price/ethereum
https://cointelegraph.com/news/3-wildest-theories-explaining-500b-crypto-market-crash
https://www.coingecko.com/en/categories/decentralized-finance-defi
