As of Wednesday, August 23rd, the amount of money held within decentralized finance (DeFi) protocols plunged to its lowest since February 2021. According to a recent report from DefiLlama, the total value locked (TVL) went below the December 2022 total of $38 billion, settling at $37.5 million as of press time.

As of press time, there have been a number of protocols that have lost the bulk of their TVLs. These include Velodrome, whose TVL plunged by 58%; and Balancer, a leading liquidity protocol, whose TVL fell by 35%.

Shame and Scandal

While many DeFi and digital asset sector proponents claimed that DeFi would transform the global financial sector by scrapping conventional trading and investment for blockchain-centric transactions, last year’s crypto winter and numerous scandals involving emergent blockchain and crypto firms made the public hold the sector off at arm’s length.

The recent regulatory crackdown on cryptocurrencies and exchanges in the United States have also driven traditional finance firms away from anything related to DeFi.

What’s Crypto Got to Do With It?

It has been noted that, whenever major players in the digital asset scene fall, many traders try to get liquidity from speculative assets like those within DeFi protocols. In practice, this is done to reduce any risks. This was evident when the crypto winter hit last year and Bitcoin’s value plummeted by 77% and that of a number of altcoins fell by as much as 95% or more.

Interestingly, DeFi appears to be having a worse time this year than either Bitcoin or Ether, both of which had a rough time last week. Some experts have attributed this apparent decay to the sector’s sensitivity when it comes to Treasury yields.