Fantom’s TVL Has Shrunk by Nearly 90% In the Last One Year to Stand at Under $70M

Fantom Protocol, one of the leading players in the decentralized finance (DeFi) space, registered a significant drop in its Total Value Locked (TVL) over the past year. Per a BanklessTimes.com report, the protocol’s nearly 90% slump in its TVL saw the metric falling under $70 million from $529.3 million a year ago. The decrease continues the downward trend that Fantom has recorded since hitting an all-time high of $7.59 billion in March 2022.

Several incidents could explain the drastic drop in Fantom’s TVL. We spoke with BanklessTimes’ cryptocurrency expert, Alice Leetham to better understand the situation. She emphasized that the protocol’s woes stem from the significant downturn the DeFi sector has experienced recently. That has shrunk its TVL from $176 billion in November 2021 to its current figure of $44 billion.

DeFi Sector’s Correction Impacted Fantom’s TVL

Alice stated:

Fantom’s TVL decline is partially due to the overall cooling-off of the DeFi sector. Many projects experienced rapid growth in 2021, leading to an influx of capital. However, the crypto market has experienced a significant correction recently, with many assets seeing substantial losses. Such market downturns often lead to reductions in TVLs, as investors withdraw their funds to secure profits or mitigate losses.

BanklessTimes’ cryptocurrency expert, Alice Leetham

She has also linked the plunging of Fantom’s TVL to the loss in the value of its native token, FTM. In October 2021, the price of FTM hit an all-time high of $3.13, but it was trading at $0.25 at press time. The 92% decline in FTM’s value has also likely impacted investors’ confidence in the protocol, contributing to the decrease in the TVL.

Furthermore, the recent Multichain debacle has compounded Fantom’s struggles. The protocol, which aimed to provide seamless interoperability between different blockchains, encountered a bridge contract exploit, resulting in the loss of nearly $130M in crypto affecting Fantom and several other blockchains. This incident further dampened investor confidence in Fantom, exacerbating the slump in its TVL figures.

Implications of Fantom’s Declining TVL

The consequences of this trend on Fantom’s ecosystem and investors are likely to be severe. The protocol’s sustainability, which relies heavily on its TVL figures, is at risk of collapsing entirely, causing losses to investors. With a significant reduction in funds locked in the protocol, it may experience setbacks in attracting developers.

Additionally, it could face limitations in the range and quality of DeFi applications running on its platform. Finally, investors who had faith in its growth potential may disengagement from it altogether. Therefore to regain its lost momentum and restore trust, Fantom must focus on addressing the issues that contributed to its shrinking TVL.

Improving protocol security, enhancing interoperability, and fostering partnerships with reputable projects could help revive investor confidence and attract new participants. By implementing robust auditing processes and transparent communication strategies, Fantom can rebuild its reputation and restore its position as a prominent player in the DeFi space.

While the current downturn in Fantom’s TVL is concerning, it is crucial to recognize that the crypto market is highly volatile, and fluctuations are not uncommon. As the market undergoes cycles of growth and correction, DeFi’s long-term potential remains promising. However, projects must demonstrate resilience, adaptability, and a commitment to addressing their shortcomings to retain investor trust.