Boom and bust: how do Defi protocols handle the bear market?

An overview of how DeFi protocols fared during the recent bear market and the importance of continuing to grow during market downturns.

Decentralized finance (DeFi) has been one of the fastest growing sectors in the crypto space since its emergence in 2018. However, like many other sectors, DeFi has seen a negative impact in the bear market current.

While the 2022 downturn wreaked havoc on many DeFi projects – and the cryptocurrency space in general – some continue to thrive.

Bear markets, while challenging for investors, can spark game-changing breakthroughs in the industry, and a new era of creativity seems inevitable if past events are any indication.

That brings us to the question: which protocols will usher in the next generation of DeFi technological advancements, and which will not?

The fable of the ant and the grasshopper can give an indication.

While the ants are busy storing food for the winter, the grasshopper is busy playing the violin and singing in the summer. Finally, when winter comes, the grasshopper will ask the ants for help because it is cold and hungry. Unfortunately, the ants don't want to help him and tell him that he should have spent his time getting ready for winter instead of wasting it on other things, so he's on his own now.

The moral of the story is that it pays to make good use of your time in order to prepare for the future.

Similarly, many of the projects that fueled the euphoria that led to the current market downturn have not significantly advanced DeFi's underlying technology. They used overleveraged tokenomics to focus on creating cash flow instead.

Thus, it seems reasonable to think that protocols focused on hype and profit are most likely to fail during a bear market, while projects focused on creating real value for the user are more likely to survive.

John Patrick Mullin, co-founder of SOMA.finance, a decentralized marketplace for digital assets and compliant digital securities, told Cointelegraph:

“Many DeFi project founders seem to be focused on the hype train and...