# DeFi Market Liquidity Decline Sparks Drop in TVL Across Major Protocols
The continued reduction in liquidity within the decentralized finance (DeFi) market has led to a noticeable drop in the Total Value Locked (TVL) of key protocols. Most notably, the TVL of the decentralized exchange Hyperliquid plummeted by 32.11% over the past seven days, amplifying market unease.
As of October 14, data from DeFiLlama indicates a general decline in TVL across major blockchains. Ethereum’s TVL has reduced to $44.75 billion, reflecting a 12.4% week-over-week decline and a 21.17% drop over the past month, signifying shrinking liquidity.
Similarly, Solana’s TVL decreased to $6.59 billion, marking a 13.29% decline over the same seven-day period and a 26.33% reduction over one month. Despite having shown a strong recovery in recent months, investor sentiment dampened and liquidity shortages have triggered a downward trajectory again.
Bitcoin’s DeFi TVL fell by 9.87% to $5.32 billion over the past week, while Binance Smart Chain, also known as BNB Chain, saw a minor decline of 0.96%, settling at $5.09 billion.
# Hyperliquid’s TVL Nosedives 32%
The most pronounced change this week was observed in Hyperliquid’s TVL, which plummeted by 32.11% to $426 million. Over a one-month span, its TVL dropped by 35.10%, recording the steepest decline among major protocols.
The primary cause of TVL reduction has been attributed to a large-scale liquidation event on October 12. A trader, identified by wallet address 0xf3f4, had taken a long position in Ether (ETH) valued at $340 million. However, subsequent removal of collateral led to a forced liquidation.
Hyperliquid’s Market Maker Vault (HLP) acquired this position, incurring a loss of $4 million due to price fluctuations. Hyperliquid clarified that this was not due to protocol hacking or a vulnerability attack. Nonetheless, the liquidity crunch following the event intensified investor withdrawal, which rapidly diminished the TVL. Post-crisis, Hyperliquid’s native token HYPE fell by over 12%, although it has subsequently shown some recovery.
# DeFi Market Volatility Expected to Increase
Large-scale liquidations, reduced liquidity, and deteriorating investor sentiment, exemplified by Hyperliquid’s recent crisis, are expected to continue contributing to heightened volatility in the DeFi market.
In response to this event, Hyperliquid has announced measures to prevent recurrence, including reducing the maximum leverage for Bitcoin (BTC) and Ethereum (ETH) trades and increasing margin requirements for large positions. However, it remains uncertain whether these measures will fully restore investor confidence.
Experts emphasize that for the DeFi market to recuperate, there must be a concerted effort to expand liquidity provision, increase trading volumes, and restore investor trust. However, instances like the recent Hyperliquid incident, which underscore the risks inherent in market-making models, suggest the potential for further volatility cannot be ruled out.
