2022 has not been a great year for crypto, at least so far. January was by far one of the worst months for digital currencies with major coins and altcoins seeing huge declines. It is now emerging that if this trend continues, some DeFi apps may disappear in the near term according to a Bloomberg Report. It’s not the first time the crypto market is seeing such massive declines.
But it’s a first one for many DeFi apps, most of which are fairly recent. Besides, although the market has experienced crashes in the past, this time around it seems that it may take longer for a rebound than expected. This price pressure could push many apps into oblivion and they may not recover. In January, Bitcoin led the way in decline, tumbling to six-month lows in just a few weeks.
Also, other altcoins, especially those that took the market by storm in 2021, are experiencing sharp corrections. Solana, Polygon, Cardano, and others are down almost 50% in January alone. But it is the decentralized finance apps that appear to be taking the biggest hit from the crypto market.
According to the data released by Blomberg, over $300 million in assets were liquidated in the DeFi space over 7 days. Also, a report by Bitcoin.com found that the total value locked in some of these decentralized finance projects has fallen sharply in January. The data by Bitcoin.com shows that the drop is well more than $30 billion.
There is also concern that the usage of DeFi products is decreasing at an alarming rate. In fact, in the last two weeks, active user wallets associated with a DeFi project have declined by over 30%. These apps emerged in 2021 as some of the hottest assets in crypto. These apps are designed to reengineer traditional finance by leveraging blockchain technology.
We have seen a lot of innovative projects in this space over the last few years. But it seems the January crypto winter is putting the brakes on these projects. There is no doubt most DeFi projects will survive this slump. But we are still not sure how long it will last. Besides, financial markets have all been falling in January as fears of Fed policy tightening continue to grip the market.
There is also runaway inflation around the world and growing threats of a resurgent COVID. With all these headwinds, it's expected that most assets, including cryptos, will continue to fall at least shortly. Besides, most DeFi apps run on the Ethereum blockchain.
Ether itself has not been spared and has slumped massively in January. The good news is that the network is expected to move towards a proof-of-stake model to help reduce gas fees and enhance chain efficiency. This may offer a much-needed boost for these DeFi apps. However, as long as price pressure continues in the coming months, some dApps are likely to hit a point of no return.