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.
Pendle Finance is introducing a new product that leverages real-world assets (RWA) to provide users with yields from traditional sectors, such as U.S. Treasury Bonds and tokenized assets, aiming to attract institutional investors into the decentralized finance (DeFi) space.
Despite concerns over rising deficits and debt, central banks globally have been buying government debt to combat deflationary forces, which has kept interest rates low and prevented a rise in rates as deficits increase; therefore, the assumption that interest rates must go higher may be incorrect.
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.
Stablecoins are designed to reduce crypto market volatility by tying their value to a reliable asset, providing investors with stability, transparency, and access to the financial system while minimizing risks.
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.
According to a Bank for International Settlements (BIS) bulletin, a centralized oracle based on trust may be the only option for DeFi, but this compromises the decentralization ethos underlying crypto DeFi.
The decentralized finance (DeFi) ecosystem experienced a decline in on-chain economic activity in August, with exchange volume decreasing by 15.5%, the DeFi Index falling 21%, and the total value locked decreasing by 8%; however, positive developments such as stablecoin growth were observed.
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).
Crypto analyst Will Clemente suggests that the US economy's need to issue more dollars to service its debt will inevitably lead to significant currency debasement, making Bitcoin the most promising asset for investors looking to protect their wealth. With the growing digital trend and a wave of Bitcoin adoption, Clemente believes that alternative monetary systems will become increasingly favorable.
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.
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.
A new report by the Federal Reserve Banks of Boston and New York concludes that stablecoins, such as Tether and USD Coin, have similar vulnerabilities as money market funds and could potentially inject instability into the broader financial system.
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.
The US economy is facing turbulence as inflation rates rise, causing losses in US Treasuries and raising concerns about the impact of high interest rates on assets like Bitcoin and the stock market. With additional government debt expected to mature in the next year, there is a fear of financial instability and the potential for severe disruptions in the financial system. The Federal Reserve may continue to support the financial system through emergency credit lines, which could benefit assets like Bitcoin.
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 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.
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 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.
Digital currencies, particularly payment stablecoins, have the potential to upgrade America's financial system and benefit families and businesses by making transactions easier, faster, and cheaper, but this can only be achieved if Washington passes stablecoin legislation that prioritizes financial stability and consumer safety.
