Luna-Crash sends a shower through the decentralized financial market

retailers turn away from investments associated with decentralized financing, which is the latest signs of how the collapse of cryptocurrency Luna worth $ 40 billion has sent shock waves through an important part of the market for digital asset.

ether, the second largest crypto token in the world and a representative for the mood on the $ 100 billion, lost more than a third of its value last month. Its decline is significantly stronger than the 23 percent decrease in Bitcoin, the oldest and most valuable digital token according to the market value.

Many crypto supporters consider Defi to be one of the most promising innovations in the digital-asset industry, with projects that aim to operate on the largest interest groups without operating on the use of automated systems without operating centralized agents. However, the failure of Luna and the associated stable coin Terrausd in the last month has made the risks of investments in defi projects and the potential for catastrophic errors in the design of programs that underpower their operation.

"Trust in the crypto ecosystem and decentralized financing remains at a historically low level," said Sipho Arntzen, analyst at the Swiss private bank Julius Bär, after the collapse of Terra and Luna and added: "

stable coins act as lubricants for transactions on the defi markets, and the wiping of Terra was considered a particularly strong blow for trust in the sector. Terra was developed to achieve the value of the US dollar through a financial relationship with the sister token Luna, in contrast to other large stable coins that claim to be covered by reserve portfolios.

The decline of ether is a sign of how the crash of Terra and Luna shaken the entire defi sector, said analysts. The token price is bound by the expectations of investors for the future of Defi, since many of the computer-aided financial apps are built on the decentralized market on the Ethereum blockchain in which Ether is located.

According to data from the digital asset manager Coinhares, investors deducted $ 56 million from Ethereum investment products in May, which resulted in this year's net drains to a total of $ 250 million. In contrast, Bitcoin products attracted $ 369 million of net inflows in 2022.

"As [Ethereum] primarily aims to provide the infrastructure for the aspiring world of decentralized apps, we believe that these losses are symptomatic of a loss of trust in the broader Defi ecosystem," said Arntzen.

Some investors argue that the Hit to Ether also reflects a re -evaluation of the future demand for several facets of the crypto industry, such as:

"Ethereum reflects like Netflix or any other share, the expectation of future demand," said Ilan Solot, partner at TAGUS Capital. He said the investors doubted the level of future demand in the Ethereum network because the economic prospects darkened.

"When the Federal Reserve is tight, the world is in a recession and people have to pay $ 4.5 per gallon of petrol, they have less time to invest in Defi or spend on blockchain games," he added.

Investors have also focused on risky systems at a broader level, said Daniel Ives, Analyst at Wedbush. He said Defi "got into a general risk-off tornado".

The derivative markets indicate that investors remain nervous in view of the short -term prospects of Ether despite optimism through Bitcoin. While the option markets are signaling a positive tone for Bitcoin next month, investors see difficult trade conditions for ether in the same time horizon, said Adam Farthing, Chief Risk Officer for Japan at Market Maker B2C2.

"The market has become much more careful towards Ether due to its recent performance and, in a way, not to Bitcoin," he said. For some investors, Bitcoin still enjoys a reputation as a security against inflation, although it has lost more than half of its value since its high in November.

Another challenge for Ethereum is the long-awaited changeover of the network to a different kind of blockchain system called Proof of Stake. It is expected that this shift will alleviate the frustrations about the long -term transaction fees and the cumbersome processing speeds of Ethereum.

Ingo Fiedler, co-founder of Blockchain Research Lab, said that the blockchain shift from Ethereum could "go wrong because every code change is risky for every software". He added that there could be unknown risks that will only come to light when the new Ethereum system is tested in the real world.

"We saw this flight from Terra to security [Rival StableCoin USD COIN] and in assets that people feel more established, and therefore I think that everything that is new or excessively technical will probably make people a little distant," said Teana Baker-Taylor, Vice President for Radiography and Regulation Strategy in the crypto Circle.