The decentralized finance industry is as competitive as ever. New projects will struggle to make a meaningful impact for various reasons. However, it is somewhat problematic to see seven projects lose over 75% of their TVL in one week.
Small-Cap DeFi Projects Lose Ground
It is very tough to compete with industry-leading projects in the DeFi sector. While there is much room for competition, innovation, and overall growth, retaining users is no easy feat. New projects coming to market will find that out sooner or later, although not all of them will have a chance at regaining that lost momentum.
Seven DeFi projects lost over 75% of their Total Value Locked in the past week. That is an astronomical number, although such fluctuations are not entirely uncommon. However, usually, they affect one or two protocols and rarely over half a dozen. Even more surprising is how five of the seven reside on the Fantom blockchain. That seems rather unusual, although other Fantom-based projects went in the red this week.
For the likes of Draco Force, Coffin Finance, undead Finance, Bouje Finance, and others, the coming weeks will prove rather difficult. These steep TVL decreases leave these four below $1 million in Total Value Locked. For Undead Finance, the TVL has now dipped below $14,000. Projects with such low TVL numbers will not attract much attention as investors will be hesitant to provide liquidity.
The same sentiment applies to Robo Vault. Zabu Finance, and Vaulty Finance. While their losses are slightly less steep, they still represent 75% of TVL or more. Recovery is not impossible but remains rather unlikely for these DeFi projects. It appears most of the funds have ended up in other protocols and projects, though illustrating how competitive this industry can be.
A Broader Negative Trend
Making matters worse is how so many DeFi projects have lost Total Value Locked this week. Roughly 400 protocols lost below 30% in TVL in a week, which is still problematic. So users are either moving funds around or pulling liquidity out of decentralized finance. The reasoning for that trend remains unclear, though.
Moreover, of the 709 projects on DeFiLlama, only 223 retained their TVL or managed to increase it. That is a worrisome statistic, although it is normal that not all DeFi projects can succeed long-term. Competing with other protocols is only the first step. Retaining suers is often much harder than it seems at first, certainly when new ideas come to market every week.