Bitcoin and other cryptocurrencies are facing intense pressure as prices drop and short-term holders offload their assets, signaling a possible capitulation phase and suggesting further downside potential. Additionally, major altcoins like Ethereum, Solana, and Cardano have witnessed a decline in their Total Value Locked (TVL) over the past week, indicating a decrease in popularity and utilization in the decentralized finance (DeFi) ecosystem.
In July, capital inflows from venture capitalists in the crypto sector decreased by 10.26%, with $700 million raised, as macroeconomic conditions and geopolitical events continued to impact investment decisions, although some notable outliers, such as Polychain Capital and CoinFund, launched new funds totaling millions of dollars, and the potential approval of spot Bitcoin exchange-traded funds (ETFs) in the U.S. could bring renewed attention and capital into the industry. Infrastructure and Web3 sectors received the most capital inflows, while overall investor activity in the blockchain industry remained low, suggesting a slow return to a steady upward trend.
Decentralized finance (DeFi) has been heavily impacted by the crypto bear market, with the total value locked in DeFi reaching its lowest point since February 2021, as investors withdraw approximately $170 billion in deposits due to decreased yields and increased exploits. However, newer protocols like Unibot are attempting to simplify the DeFi experience and show promising signs for reigniting the DeFi space.
Binance CEO Changpeng "CZ" Zhao predicts that decentralized finance (DeFi) has the potential to surpass centralized finance (CeFi) in the next bull run, emphasizing the positive impact of regulatory clarity and the need for broader cryptocurrency adoption worldwide.
The International Monetary Fund (IMF) and the Financial Stability Board (FSB) have published a joint policy paper with recommendations for regulating stablecoins and decentralized finance (DeFi) activities, in response to the risks associated with crypto assets.
Global securities regulators have outlined a blueprint to hold participants in decentralized finance (DeFi) accountable for their actions and protect market stability, as the sector has experienced significant shrinkage and is being used for money laundering; regulators are proposing a framework to ensure investor protection, risk management, and cross-border cooperation.
Bitcoin and the overall digital asset market have seen a significant decline, with Bitcoin dropping to its lowest price in three months at $25,048, attributed to failed crypto exchange FTX seeking approval to liquidate $3.4 billion in various digital assets.
The concentration of assets in decentralized finance (DeFi) could pose a risk if stablecoins surpass the market capitalization of the native tokens of their underlying blockchains, creating a potential for double-spending and control by token holders, highlighting the need to rethink distributed ledger technology (DLT) architecture and explore alternatives to blockchain such as directed acyclic graphs (DAG).
Decentralized finance (DeFi) projects in the US face significant regulatory risk, according to Synthetix founder Kain Warwick, who believes that US regulators are neglecting the advantages of transparent and open infrastructure in financial markets and that it will be left to the courts to resolve these issues.
Summary: Economic activity in the DeFi sector dropped by 15.5% in August, according to an analysis by investment management fund VanEck, while blockchain capital announced two new crypto-focused funds totaling $580 million, and Balancer protocol attributed its recent exploit to a vulnerability in its DNS service provider. Additionally, Chainlink and Arbitrum have partnered for decentralized application development, and the top 100 DeFi tokens experienced a bearish week.
DeFi has become centralized, with stablecoins and real-world assets dominating the market, but crypto staking yields can bring decentralization back to the space by offering a viable alternative.
Bitcoin is showing strong on-chain activity with record-high numbers of HODLers and transactions, but its economic value is significantly low due to global liquidity contraction, according to crypto market analyst Jamie Coutts.
Decentralized finance (DeFi) derivatives ecosystem Avantis Labs has raised $4 million in a seed funding round led by Pantera Capital to grow its flagship product Avantis, a perpetual-trading and market-making protocol that aims to enable forex and commodities to be hedged and traded on-chain without the need for tokenization, with plans to expand its capabilities beyond perpetual trading to include options trading in the future.
Stablecoin issuer Circle Internet Financial has released Perimeter Protocol, an open-source smart contract codebase that allows for the development of tokenized credit markets, enabling various credit use cases such as invoice factoring, payroll advances, instant settlement, and credit trading for institutional investors. This move comes as the tokenization of real-world assets gains momentum, with tokenized assets predicted to grow to a $5 trillion market in the next five years. Circle aims to leverage the protocol to enhance the utility of its stablecoin USDC and Euro-pegged token EURC in decentralized finance (DeFi) credit platforms.
Interest-bearing stablecoins are becoming increasingly popular in the DeFi sector as they offer attractive yields generated from real-world assets, such as T-Bills and government bonds, providing a transparent and auditable alternative to traditional banking systems.
Decentralized finance (DeFi) has the potential to revolutionize wealth building globally, and the use of Artificial Intelligence (AI) can address challenges such as liquidity, language barriers, regulatory compliance, and security to further enhance its adoption and growth.
Yield Protocol, a decentralized finance (DeFi) lending protocol, has announced its decision to shut down due to a lack of business demand and global regulatory pressures, including unfavorable crypto regulations in the United States, Europe, and the United Kingdom.
The total market capitalization of stablecoins, including PayPal's stablecoin, has decreased, indicating a contraction in the digital-asset sector.
The market capitalization of stablecoins has dropped by 35% in the past 18 months due to factors such as reduced retail participation, surging US treasury yield, and high opportunity cost, with only a few stablecoins like USDT remaining resilient and dominant in the market. The decline is attributed to traditional finance rates exceeding crypto-native yields, and the market share decline of US-native stablecoins is seen as a result of U.S. regulation hostility. Stablecoins are considered the "killer app" of the crypto industry, comprising a significant portion of settlement activity on public blockchains. The trend is expected to reverse when there is revived interest in crypto trading, steady interest rate cuts, and a pro-crypto regulatory environment.
Bitcoin and other cryptocurrencies experienced a slight decline along with the wider market, but analysts are optimistic that the recent uptrend will persist.
Bitcoin has decoupled from traditional equities such as the S&P 500, with its price trajectory no longer mirroring that of major indices, highlighting the changing dynamics between traditional financial markets and the cryptocurrency sector.
The European Securities and Markets Authority (ESMA) released a report on decentralized finance (DeFi) and its risks to the EU market, highlighting the liquidity risk, counterparty risk, vulnerability to scams, and lack of recourse mechanisms as key concerns, although it concludes that DeFi currently does not pose significant risks to financial stability due to its small size and limited interconnectedness with traditional financial markets.
The European Securities and Markets Authority (ESMA) has warned of the "serious risks" of decentralized finance (DeFi) despite its early stage, citing concerns over investor protection, operational vulnerabilities, and lack of a responsible party. ESMA plans to further investigate this nascent market that defies traditional regulatory frameworks for centralized entities like banks and exchanges.
The total amount of capital locked in decentralized finance (DeFi) protocols has dropped to its lowest point since February 2021 as traders seek higher yields and less risk in traditional finance products, leading to a decline in the DeFi sector during the ongoing cryptocurrency bear market.
The French Central Bank has concluded its consultation on the regulation of decentralized finance (DeFi), finding that it is more appropriate to refer to DeFi as "disintermediated" finance due to the persistence of centralization patterns and the operational risk of high concentration in blockchain infrastructure. The majority of respondents support continued deployment of DeFi on public blockchains, with regular auditing and regulation of intermediaries and smart contracts. The European Securities and Markets Authority (ESMA) also highlighted the benefits and risks of DeFi in a recent report.
Summary: European securities regulators have released a report highlighting the risks and benefits of decentralized finance (DeFi), Uniswap has launched an Android wallet beta, Star Arena recovered 90% of stolen tokens after offering a bounty, Platypus Finance fell victim to another flash loan attack, and the total value locked in DeFi protocols reached $45.67 billion.
