The market crash witnessed on March 12 nearly brought the Ethereum-powered DeFi sector to a halt as the ether price took a serious nosedive. The situation was severe to the extent that MakerDAO, the largest DeFi player on the network, contemplated an emergency shutdown.
Ethereum has emerged to be a significant player in the world of decentralized finance because it is an open-ended blockchain platform consisting of computer codes and smart contracts. During the beginning of the year, the value of DeFi applications was worth more than $1 billion. Even more, it looked to be solidifying an upward trajectory in Ethereum-based smart contracts.
The party was short-lived, however, and it looked like DeFi was be swallowed up in the massive market crash witnessed last week that saw Ethereum depreciate by 50%,
Ethereum and DeFi Volatility Exposed
With the Ethereum-powered DeFi market gaining traction following the injection of $2 million into dYdX and Compound protocols, crypto exchange Coinbase described DeFi as an ideal financial structure that was objective, censorship-resistant, and readily available on a smartphone.
On March 12, DeFi was thrown into disarray after the price of Ethereum precariously plummeted, shedding 30% in 24 hours amid worldwide market turmoil. The downward trend continued until the asset had been devalued by 50%. The biggest casualty was MakerDAO, the largest player in Ethereum-based DeFi.
MakerDAO Gets Hit the Hardest
The market crash got bad enough that MakerDAO was contemplating an emergency shutdown because of how much the Ethereum price had collapsed.
MakerDAO lies at the heart of DeFi on the Ethereum network based on its considerable innovations in this sector. For instance, it permits users to acquire loans as per algorithm-based interest rates in the form of a stablecoin called DAI.
The near-collapse of the DeFi sector was triggered by the diminishing of the cryptocurrency market due to the uncertainty in the global financial market and coronavirus spread.
After Bitcoin reached $9,200 on March 7, the asset plummeted in tandem with other financial markets and indices like the S&P 500, and eventually hit a bottom at $3,800. One of the reasons for this steep decrease was the high leverage witnessed in margin-enabled crypto exchanges.
Altcoins were not spared as their prices also plunged — and Ethereum was not an exemption. Given that Ethereum is the backbone of the DeFi market, the nosediving of its price brought this sector to a near halt.