The total value locked in smart contracts enabled for decentralized finance has dropped 35% from its peak.
The drop in the price of Ether (ETH) fails to shake up holders in the long term, while the decentralized finance (DeFi) sector also provides opportunities for investors.
Thus, a new report from Glassnode suggests that many long-term (> 155 days) holders of Ether are on top of gains despite ETH / USD’s 55% decline from its high by above $ 4,300. In comparison, short-term Ether holders (
“After nearly reaching 46% of market capitalization in unrealized earnings, short-term holders now have an aggregate paper loss of -25% of market capitalization,” Glassnode wrote. “By contrast, long-term holders maintain strong profitability, holding paper earnings equivalent to around 80% of market capitalization.”
Those in losses are more likely to liquidate their ETH holdings, Glassnode added, citing its proprietary STH-NUPL (Short-Term Holder Net Unrealized Gain-Loss) indicator, which fell below zero.
Net Unrealized Gain / Loss (NUPL) analyzes the difference between unrealized gain and unrealized loss to determine whether the network as a whole is currently in a profit or loss statement.
The short-term Ether holder NUPL falls below zero. Source: Glassnode
Glassnode further noted that LTH-NUPL, an indicator that measures the net unrealized gains and losses of long-term holders, was flat during Ether’s downward correction. Therefore, according to the data analysis service, a flat LTH-NUPL showed the intention of the holders to take downside risks in the Ether market.
Long-term Ether holder NUPL is close to 1. Source: Glassnode
DeFi to limit Ether declines?
The latest LTH-NUPL readings above 1 were during the 2017-2018 bull run, in which Ether prices surged 20.217%. Nonetheless, the massive upward movement followed with an equally strong sell-off: ETH / USD wiped out nearly 95% of those gains.
The voluminous declines showed long-term holders panicking their ETH holdings after witnessing their paper gains disappear.
But then 2018 did not have a DeFi sector that could take the ETH of those holders and return it with annualized returns like a government bond. Glassnode noted:
“Unlike previous times of capitulation, many of these long-term incumbents are now able to deploy their assets in DeFi. ETH is widely deposited in lending protocols like Aave and Compound, where it currently sees outstanding deposits of more than $ 4 billion. “
Outstanding deposits and borrowings at Aave and Compound as of Wednesday. Source: Dune Analytics
Long-term holders can borrow stablecoins (tokens pegged to the United States dollar) by holding their ETH as collateral with the Aave and Compound protocols. As a result, the strategy allows depositors to earn attractive returns without risk or speculating on token prices.
“These holders can accumulate governance tokens, increase their stablecoin balances, or buy on big dips, all while maintaining the exposure they have to ETH as long-term lenders,” added the Glassnode report. “Deposits and loans at Aave and Compound remain strong.”
However, unstable asset borrowing remains a riskier alternative. For example, governance tokens have fallen more than 60% from their peaks during the last recession. DeFi participants, especially those who are long-term Ether holders, therefore look for risk-free yield cultivation opportunities to survive the downside volatility.
With liquidity still strong among DeFi platforms, just over $ 100 billion according to data provided by Glassnode, and the willingness of Ether holders not to liquidate their assets, it is likely that ETH can avoid a downward correction. similar to 2018 in 2021.
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