According to U.Today, Patrick Hansen, Circle’s Senior Policy Director for Europe, has suggested that the decentralized finance (DeFi) sector needs a complete overhaul. This comes in light of the observation that the DeFi Total Value Locked (TVL) has remained stagnant for over three years. The TVL is even less than half of what it was at the end of 2021 if the Liquid Staking capital lockup is excluded.
Data from DeFiLlama shows that the DeFi TVL is currently at $142.347 billion, a decrease of more than $220 billion since December 2021. This decline is surprising given the increasing number of decentralized applications (dApps) on Ethereum (ETH) and other protocols closely linked to smart contract finance applications. Despite the outward evolution of the industry, Hansen believes there should be a significant difference in the locked TVL.
Hansen acknowledges that the TVL is not a perfect measure of overall market performance, but he insists that the DeFi sector needs a new wave of innovations and applications. However, the drive to innovate may face challenges due to the stringent regulatory environment in the United States, a major market for DeFi liquidity.
The focus of traders has notably shifted over the past few years towards Ethereum restaking protocols. This is the one area of the DeFi ecosystem that has seen a significant increase, led by Lido DAO and EigenLayer. However, regulatory hurdles, such as the Wells Notice received by Uniswap, a major protocol in the decentralized exchange (DEX) world, from the U.S. Securities and Exchange Commission (SEC), could potentially slow down progress and dampen optimism for new innovations.