Although crypto as an industry unfortunately does not look good in the recent crash, it is notable that the chaos is caused by the centralized lending platforms and hedge funds. Decentralized Finance (DeFi) in particular has continued to run smoothly. The exceptions are Bancor and Solend.
While several crypto lending platforms and hedge funds ran into trouble last week (including Celsius, 3AC, Babel Finance, and Voyager), the major decentralized crypto markets continue to run largely without issues. The biggest lending apps, such as Aave and Compound, were trucking along nicely. They stayed up and running and people could deposit and withdraw just fine.
A black hole versus transparency
This is in stark contrast to a centralized platform like Celsius, which was forced to halt withdrawals. A key difference with DeFi is the lack of transparency. With lending platforms like Celsius, you park your money and it disappears into a black box. You trust the company to take responsible risks in amassing interest. That clearly hasn't been the case.
With DeFi, on the other hand, transactions happen on-chain and are therefore publicly visible. Although addresses are pseudonymous, it is visible what amounts have been deposited and lent, and what the collateral is worth. The Total Value Locked (TVL) in DeFi has dropped from 200 billion to 70 billion since the Terra ecosystem crash. Yet this did not lead to any major problems.
DeFi also has issues: Solend and Bancor
Still, some DeFi protocols did experience their issues during this crisis. Large movements of capital are forcing some protocols to take measures that they would rather not take and that go against the ethos of crypto. Code is law, after all. The extent to which teams of developers, through a hastily formed DAO, wanted to claim control over a whale's credit has been hotly debated since the Solend debacle.
Bancor, an automated market maker, is also in trouble. It discontinued its protection against impermanent loss. That a was a service the offered: a kind of insurance against the risk of loss that capital depositors face when they enable trading in liquidity pools. It seems that large parties (Celsius, it is rumored) have withdrawn large amounts of BNT (Bancor's own coin) from Bancor, so the platform can no longer provide enough liquidity: in all trading pairs BNT is included.