Rikkei Finance

<p>The current bear market has hindered the crypto space&#39;s growth, including the DeFi market. Many DeFi projects have been eliminated in the financial downturn; however, some with effective protocols are still in the game and can be even more prosperous in the future.</p><p>The question is: What are these protocols and how can they remain the survival of the DeFi market despite receiving so much financial damage from the bear market? The answers will come right after this.</p><h2 id="header-0"><strong>Background of DeFi</strong></h2><p>The decentralized finance (DeFi) market allows users to lend and trade crypto without intervention from intermediaries like banks or financial institutions. It is considered to have first appeared in 2009 when Bitcoin introduced the initial peer-to-peer money applications. With benefits like lower costs compared to centralized finance, permissionless, and high accessibility, DeFi achieved great success, especially during the 2020 to 2021 period.</p><p>For instance, the capitalization of the DeFi market was recorded to surge from 686 million dollars in 2020 to 15.6 billion dollars in 2021, and the number of DeFi users is expected to be 1 billion at the end of 2022. As a result, it is normal that more investors are willing to pour money into this innovative trend that is competing equally with the traditional finance method.</p><h2 id="header-1"><strong>The downfall of DeFi</strong></h2><p>Due to the volatility of the crypto industry, the prosperity of the DeFi market in 2021 quickly ceased in 2022. The bear market happened when Bitcoin and Ethereum dropped their value by 50% and 60%  respectively. In the first half of 2022, the Total Value Locked (TVL) of DeFi was 77.74 billion dollars, a 156 billion dollars reduction compared to that in 2021. Besides panic asset selling and inflation increases, the downfall of DeFi platforms is also caused by the lack of preparation for negative financial situations, which can be seen via the example of the Terra blockchain ecosystem collapse.</p><h2 id="header-2"><strong>Protocols that survive in the bear market</strong></h2><p>Those that appear to operate efficiently in the bear market are projects reinforced by trustless designs like lending protocols or liquidity platforms. They are intended to function when token valuations are high and the bear market has no bearing on whether or not they can function when they are low. As a result, the amount of money locked in DeFi platforms in 2022 has soared 500% compared to last year’s amount, which indicates the continuous demand from users despite the situation.</p><p>Until now, the DeFi market has experienced two outstanding innovations. At first, it thrived with the peer-to-pool mechanism, then appeared as algorithmically-driven cycles to raise high returns for users. It seems like the goal that the creators were heading toward was only to maximize profit. Unfortunately, this action of over-leveraging tokenomics was more about satisfying human greed than finding a way to survive in the bear market. Thus, many protocols that only focus on cash flow and forget about the technical foundation and user value are most likely to be eliminated.</p><p>Moreover, instead of considering the bear market as a threat, DeFi platforms think of it as an opportunity to build and strengthen the protocols. The right way to face the bear market is to think long-term and pay attention to improving quality. Without the bull market, creators of DeFi platforms are not distracted by the thrill of short-term cash flow but are driven by the pressure from the bear market to look deeper into the system and develop new technologies. Infrastructural security and sustainable business practices are some aspects that need to be taken care of in a crisis like this. In addition, the force of the bear market also supports DeFi platforms in eradicating weak projects and superficial investors.</p><h2 id="header-3"><strong>Conclusion</strong></h2><p>Despite being affected negatively by the bear market, DeFi platforms have still figured out ways to stay in the game with their user-based value protocols. In the future, the DeFi market is expected to grow even stronger in the bear market when more long-term and sustainable technologies are invented and applied.</p><p><em>For more information, join Rikkei Finance Discord community: <u><a href="https://discord.gg/GM3U44e6PG" rel="noopener noreferrer nofollow">https://discord.gg/GM3U44e6PG</a></u></em></p><p><em>Disclaimer: The information herein is for reference purposes only and should not be considered financial, investment, or trading advice. Please conduct your own research and due diligence before making investment decisions. You understand that you are using the Information provided at your own risk.</em></p>

How DeFi protocols survive in the bear market?

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