Total Value Locked in decentralized finance (DeFi) witnessed a sharp decline over the past week while falling below the $50 billion mark.

Bitcoin's value experienced a significant drop of nearly 7% in the past week. This decline occurred after Bitcoin encountered resistance near its June 2022 high of $30,000, preventing it from advancing further. The king coin's strong correlation with the altcoin market meant that this decline also affected other cryptos. Ethereum, for example, saw its value decrease by around 12% in the same period.

This decline in crypto value directly impacts the total value locked (TVL) in DeFi, as the USD value of assets in DeFi platforms is intrinsically linked to the value of cryptos. Recently, the TVL in DeFi recovered above the $50 billion mark, only to fall below this critical level once more due to ongoing market fluctuations.

Regarding individual projects, the leading DeFi project Lido maintains its dominance in the market, holding around 23.8% of the total TVL. However, Lido experienced a weekly decline of 9.2%, significantly contributing to the overall drop in TVL over the past few days.

The total value lost from crypto projects in 2023 has reached $272 million, according to DefiLlama, including the $197 million Euler Finance exploit in March and the $7.4 million Hundred Finance exploit this month. These security breaches can shake user confidence and could cause near-term setbacks or liquidations.

For the market to reclaim its growing TVL levels, it must address these concerns and demonstrate stability and resilience. This could involve enhancing security measures, improving user experience, and promoting collaboration between projects, ultimately fostering a more robust and reliable DeFi ecosystem.

Ethereum's Dominance, DAA, and TVL Recovery

As the leading blockchain in TVL, Ethereum hosts numerous DeFi protocols and projects. With nearly 755 protocols and a TVL of over $28 billion, Ethereum's influence on the DeFi space is substantial.

A key factor that can impact Ethereum's TVL is the number of daily active addresses (DAA) interacting with its protocols. A high DAA indicates increased user engagement and a thriving ecosystem, which can contribute to a higher TVL.

Recently, Ethereum's TVL has experienced a decline, coinciding with a bearish divergence between the price and the DAA line. A bearish divergence occurs when the price of an asset moves in the opposite direction of an indicator, such as DAA.

Ethereum's price increased while the DAA looked south. This divergence may suggest a weakening market, potentially leading to further declines in price and TVL.

The decline in Ethereum's overall price and the decline in DAA have had a sizeable impact on the TVL. However, the situation could quickly change with a potential market recovery in the coming days or weeks.

An increase in Ethereum's price or a flourishing altcoin season can contribute to the overall improvement in TVL levels. As the market recovers, Ethereum's TVL could again exhibit growth, reflecting the resilience of the DeFi ecosystem. Additionally, developments in Ethereum's infrastructure, such as the recent network upgrades and the implementation of Layer 2 scaling solutions, can help attract more users and improve the scalability and efficiency of the platform, further contributing to the growth of TVL.

Moreover, mainstream users' and institutions' increased awareness and adoption of DeFi could play a crucial role in recovering and sustaining TVL growth. As more users recognize the benefits of decentralized finance, such as permissionless access, composability, and programmability, they may be more inclined to participate in the DeFi ecosystem. This increased participation can lead to a higher demand for DeFi products and services, ultimately boosting the TVL across various platforms.