The running year for the cryptocurrency market has been extremely rough and harsh. As a result, multiple projects ended up collapsing and the investment communities saw huge dips in valuations and prices.
In recent years, a great ruckus has been created throughout the cryptocurrency industry. So far, a lot of dust has spread all over the cryptocurrency industry and it may take time to settle.
However, it is not just the dust that the investors are concerned about. It is also the poor risk management as well as the systematic risks involved in decentralized finance (DeFi) that have the investors worried.
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As per the experts and the gurus within the crypto-verse, multiple reasons have caused the crash within the DeFi industry. They have also stated what must be done by the developers and entities within the particular space to fix it.
According to the experts, if these issues are addressed in a timely manner, they can be fixed to regain the lost success and growth of the DeFi space.
Failure of Sustainable Revenue Generation
Despite being widely adopted, the protocols operating within the DeFi space have shown the inability of offering sustainable opportunities for generating income. It is the protocols within the particular space offering sustainable income generation opportunities that provide value to the ecosystem.
Although the DeFi protocols did claim they offered high yields to the users but such tactics failed to bring in many inflows. This resulted in offsetting the payouts to the investors and users interacting with the DeFi sector. This ended up causing a dip in the trading price of the tokens available in the DeFi sector.
Over time, it was realized that the tokens in the DeFi sector had no assets backing them up. These were the assets that were given out to the users/investors in the form of yields.
With the passage of time, the investors realized their investments were not bringing them the same yields they had expected they would. Therefore, the investors started selling their owned and other tokens they were rewarded. This caused a dip in the value of tokens and the TVL for cryptocurrencies within the DeFi space.
Poor Structure of Tokenomics
The second flaw of the DeFi space was the tokenomic structure designed poorly for many projects in the DeFi space. Despite offering huge rewards and prizes, the DeFi tokens being given out didn’t have the expected worth.
As a result, not much participation was recorded on any of the giveaways or other offers that were run within the DeFi space by the protocols.
Users with Overleverage
The DeFi protocols reportedly offered very high leverages to the users. Some of the protocols such as 3AC and Celsius were among the protocols offering very high leverages to the users while trading.
As a result of these issues, the DeFi sector has continued experiencing demise. If these issues are fixed by the DeFi protocols, then the DeFi sectors’ cryptocurrencies can experience a boost.
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