The cryptocurrency decentralized finance (DeFi) sector suffered a blow this week more severe than the broader crypto market, with the CoinDesk DeFi Index falling 9% from its Monday peak, while the CoinDesk 20 benchmark dropped 5% in the same timeframe.
Leading the downturn was the governance token of Pendle—a DeFi protocol that offers tradable tokens representing cryptocurrency yields—which saw a decline of over 20% in trading on Tuesday and Wednesday, with short positions piling up betting on further drops.
Data from Defillama revealed a significant drop of $3 billion in the protocol’s Total Value Locked (TVL). Analysts believe that many users withdrew their funds from the protocol after the expiration of lock-up periods at the end of June, rather than continuing to hold. Pendle also benefited from an airdrop and yield farming craze earlier this year but has recently stagnated.
“The current future pool yields are not very attractive, so people are choosing to withdraw rather than continue holding,” said Rob Hadick, a partner at venture capital firm Dragonfly.
“While there will be short-term fluctuations in TVL due to specific point programs expiring, we are hearing excitement about upcoming collaborations, including the Symbiotic-Ethena-Mellow partnership, which should attract new capital inflows,” Joshua Lim, co-founder of major trader Arbelos Markets, said in an interview with CoinDesk.
Other major DeFi lending platforms Aave (AAVE) and liquidity staking protocol Lido (LDO) tokens were also among the worst performers in the same period, dropping 10%-15%.
These declines coincided with a large cryptocurrency investor or “whale” moving $6.2 million worth of LDO and $4.5 million worth of AAVE to the cryptocurrency exchange Binance early on Wednesday, likely to sell the tokens, an observer noted, citing blockchain data from EtherScan.
The struggles of the DeFi industry coincide with a downturn in the crypto market, with Bitcoin (BTC) and DeFi hotspot Ethereum (ETH) consolidating below their March highs. As the second-largest crypto asset, Ethereum fell about 6% from its Monday peak and has since erased most of the gains made since the end of May when the possibility of a U.S. spot ETF receiving regulatory approval caused a significant overnight surge.