Locked Assets in Ethereum DeFi Drops 10%
Reacting to wavy ETH prices, the total value of locked assets in Ethereum DeFi is down 10 percent from around $12.3 billion registered on Oct 26. DeFi is sensitive to prices because of the over-collateralization requirement by dominant lending and borrowing services. Decentralized applications like MakerDAO and Compound are one of the most popular, trailing Uniswap.
Rising ETH prices has an effect of pumping the total value of assets locked in DeFi. However, when prices fall, there tends to be a shock, and the number of assets under management drops because of the over-collateralization requirement instituted by some of these DeFi protocols. This is because digital assets are volatile. By Nov 3, there were $11.1 billion of assets in DeFi, down from $12.3 billion on Oct 26. During this time, the ETH price fell by 10 percent against the greenback.
Impact on the ETH Price:
Negative. DeFi liquidation feeds on the prevailing ETH price slump in a Domino Effect. This is because the general performance of DeFi is pinned on the success of ETH prices. There is presently no mechanism to counter this effect.
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