Ethereum is undoubtedly one of the most popular and promising crypto currencies. In recent weeks, however, its value has continued to decline. We are more accurately referring to the considerable decline in Ethereum’s TVL. What are the reasons for this decline? How to position yourself in this situation? The answers !
Drop in Ethereum TVL: What are the causes?
The TVL represents the total value of assets locked in Ethereum-based DeFi protocols. More concretely, it is a key indicator of the health and activity of this crypto ecosystem.
According to data recently published by Glassnode, Ethereum’s TVL currently stands at just $19.2 billion (compared to $31.1 billion in previous quarters).
Several factors can explain this decline and competition from other crypto blockchains is at the top of the list. They offer alternative DeFi solutions, faster, less expensive and more scalable than Ethereum.
Added to this the increased volatility of the crypto market as well as the lack of regulatory clarity (especially in the United States). This creates uncertainty among crypto investors and DeFi users.
TVL Ethereum in free fall: What consequences for crypto?
The decline in Ethereum’s TVL has negative consequences for the ecosystem and its users. On the one hand, she reduces the attractiveness and competitiveness of Ethereum compared to other blockchains which can offer more efficient and more diversified DeFi services.
On the other hand, it reduces the income and incentives of players in the crypto ecosystem. We cite in particular:
- liquidity providers,
- dApp users.
Indeed, TVL is linked to the volume and fees generated by transactions on the Ethereum blockchain. The latter represent a considerable source of remuneration for these actors.
Finally, the fall in TVL affects security and decentralization of Ethereum. These depend on the number and diversity of nodes that participate in block validation.
How to react to this situation?
There are several possible strategies to deal with Ethereum’s bearish performance. The first consists of stick to crypto. The fact is that it still has many advantages:
- his notoriety,
- his community,
- its wealth in terms of projects and innovations…
The second strategy is to diversify your portfolio by investing in other crypto currencies or blockchains. This helps reduce the risk associated with dependence on Ethereum, while taking advantage of the opportunities offered by other platforms.
The drop in TVL will inevitably have negative consequences for Ethereum and its users. But it also offers crypto opportunities to be seized, provided you stay regularly informed.
Receive a summary of the news in the world of cryptocurrencies by subscribing to our new servicedaily and weekly so you don’t miss anything of the Tremplin.io essentials!