The amount of Ethereum (ETH) locked up in DeFi dapps is down 12% to $1.06 billion. Meanwhile, ETH prices have dropped 7% after peaking at $282 on Feb 15, 2020.
This finding is interesting for investors.
Nonetheless, the shrinking value of ETH held in DeFi apps, commentators argue, cannot be used as a metric to gauge adoption, and specifically, the shift from traditional finance to this new-age concept of disintermediation and autonomy.
ETH locked in DeFi soared past $1 billion
It was a watershed moment for Ethereum as a hosting platform when the value of ETH locked in DeFi closed above the $1 billion mark.
The level was an indicator of how strong the underlying rally was. Interestingly, it only took less than one year for the TVL in DeFi to more than triple from $317 million to $1 billion.
Notably, the amount of ETH locked up in lending dapps spiked as the prices of the second most valuable coin soared, outperforming Bitcoin and satisfactorily lodging itself at second.
Rallying Ethereum Prices Caught the attention of traders
Then, after ETH bottomed up from late December 2019, prices almost doubled following its rally from below the $150 mark and peaking at $300.
The impetus behind this uptick could be partly attributed to the revival of Bitcoin prices and the changing sentiment from the wider investment community.
Given the direct correlation and the deeper liquidity of Bitcoin, capital inflow to ETH caused the coin to rally, lifting the token ecosystem.
When prices soared, holders lent out their assets for extra interest while concurrently earning capital gains.
Are Investors Exiting Ethereum (ETH) Longs?
Given the direct correlation which is now emerging, it appears as if ETH price and DeFi absorption is circular.
The rising prices of the former increases the velocity of the latter.
As prices peaked and the Ethereum bulls exit their position, the amount of ETH locked in DeFi also decreases in tandem.
“ETH deposited in DeFi is not a good metric for user adoption! It is an outstanding loan growth. The current drop in ETH locked in DeFi is explained by borrowers removing unnecessary collateral after ETH pumped 2x in 6 weeks.”
The question now is whether ETH prices will dump as bulls short and exit DeFi as TVL hints.