Ether (ETH) has set a new of all time earlier this week at $ 4,946, but the fuel of on-chain financing looks weaker than in earlier cycles.
The total value locked (TVL) on the decentralized finance (Defi) ecosystem of the network, however, was $ 91 billion, considerably under the record of $ 108 billion in November 2021, according to Defillama Data.
In ETH terms the gap is sharper: slightly less than 21 million ETH is locked on Tuesday, compared to 29.2 million ETH in July 2021. Earlier this year, the figure was 26 million ETH. This means that fewer tokens are actively connected in Defi than at any time, because the protocol has reached its price heights.
Graphs show the disconnection. Dex volumes and perps flows remain active, but they have not returned to earlier peaks, even with prices that break new records.
Layer 2s scoop liquidity on
Part of the shift is structural because layer 2’s pull in. The Defi TVL of Coinbase-supported base is high at $ 4.7 billion, in addition to the growth of arbitrum and optimism. Capital efficiency has also changed the comparison, with expansion protocols such as Lido concentrate liquidity without the same bulk deposits that once blown up rough TVL.
“Despite the achievement of new highlights of ETH, the TVL remains under earlier records due to a combination of more efficient protocols and infrastructure, as well as increased competition from other chains in the midst of a silence in retail participation,” said Nick Ruck, director of LVRG Research, in a telegramation.
“To reclaim those TVL peaks, we would need a revival in the involvement of the retail trade, a broader acceptance of Ethereum-Native Return Opportunities and a delay in capital migration to competing chains or investments outside the chain.
In 2020 and 2021, TVL was the favorite growth statistics of the market. “Defi Summer” changed the yield of the yield to a speculative loop, where tokens floured in maker, Aave, Compound and Curve in search of double and triple figures.
The fast climb in TVL became a steno for the dominance of Ethereum and ultimately a signal of price momentum. But this dynamic looks weaker this cycle. Volumes on Dex’s and perpetuals remain stable, but they have not returned to levels that have once defined the Ethereum outbreak.
Application costs were much higher around previous peaks of the ETH price. (Defillama)
Structural shifts affect Defi
Part of the shift is structural. The rise of liquid deployment protocols such as Lido has made capital more efficient, so that the liquidity concentrates without the bulk deposits that once blown up.
The divergence also reflects how this cycle is driven. ETF intake, institutional allocations and macro positioning are the dominant catalysts for the record price of ETH, with net assets about such products that jump from $ 8 billion to more than $ 28 billion from this week.
Retail Defi activity, the fuel of earlier Booms, has to follow. That makes ETH look less like the center of crypto speculation of the base and more as a macro assets.
For ETH Bulls, the hope that record prices will eventually be in chain experimentation and withdraw capital in Defi.
Until that time, the gap between token value and protocol use serves as a reminder that this cycle unfolds differently. If the involvement of the chain does not return, the record prices of ETH could eventually lean on thinner foundations than Bulls would like to admit.
