Ethereum and other DeFi assets have dropped over the week, but DeFi infrastructure is getting a boost from Bitcoin
The past week was a mixed bag for the decentralized finance (DeFi) market. Top players such as Yearn.finance’s YFI and AAVE faced slight corrections while smaller-cap plays underwent strong rallies.
The fundamentals of the DeFi space continued to gain strength, though. The Ethereum 2.0 upgrade saw further support from users while individual protocols announced positive developments. The space also got a big boost with a group of developers launching a Bitcoin-focused DeFi platform to attract BTC holders.
- Ethereum and DeFi tokens dropped this past week, following bitcoin lower.
- Only Compound’s COMP token was saved, which is rallying seemingly on rumors about a protocol upgrade.
- Ethereum is gaining interest as an institutional asset class, according to a Grayscale executive.
- ETH2 continued to gain traction this past week, with users continuing to deposit capital into the upgrade’s deposit contract.
DeFi market update
Following bitcoin’s path lower, top crypto assets underwent a correction this past week. Ethereum currently trades for $546, down from last week’s highs of approximately $605.
Leading decentralized finance coins also dropped, falling in tandem with ETH. Some of the worst-performing crypto assets of the past seven days are DeFi coins, per CoinGecko. YFI, Uniswap’s UNI, Ren Network’s REN, and Chainlink (LINK) are amongst the DeFi-focused coins down this past week down by double digits.
The only large-cap DeFi coin spared by the drop was Compound (COMP), which is benefiting from rumors regarding an upgrade to the protocol. Trader “CL,” for instance, postulated that there is likely an “announcement coming,” referencing order book trends.
“Ceteris Paribus” found that the average DeFi coin is up approximately 55% since the October lows. For context, bitcoin has only gained about 30% in that same time frame. Ethereum, though, has gained 50%, rallying due to hype around the ETH2 upgrade.
Qiao Wang, a leading investor in DeFi, commented on why DeFi recovered so fast in a November comment:
“Recap of what I think happened. The mindshare of every informed alt player was on DeFi. But everyone was too afraid to buy on the way down. A game of chicken. Then everyone piled in at the first sign of strength. Today many are still in disbelief. But all mindshare is on DeFi. The liquidity in DeFi is simply not big enough to accommodate all of them. Hence the massive high-volume V-shaped recovery.”
There are some decentralized finance coins outperforming, though. Smaller capitalization coins such as Cover Protocol’s COVER, a decentralized insurance system, are up over 100% in the past week.
Ethereum gaining institutional adoption: Grayscale chief
Ethereum is gaining adoption as an institutional investment, according to Grayscale managing director Michael Sonnenshein. As an asset manager servicing clients such as family offices and macro hedge funds, he said:
“Over the course of 2020 we are seeing a new group of investors who are Ethereum first and in some cases Ethereum only. There’s a growing conviction around Ethereum as an asset class.”
He added that he thinks ethereum has reached a point where it has similar “staying power” to that of bitcoin.
This is largely due to the rise of DeFi, which is really the first time that cryptocurrencies have been adopted for something other than payments.
Sonnenshein may be right. As we covered in last week’s DeFi update, Paul Tudor Jones mentioned ethereum in an interview with Yahoo Finance. He suggested that it may be an industrial cryptocurrency, similar to how there are industrial metals and precious metals.
Synthetix Spartan Council elected
Synthetix, the leading synthetic asset protocol on Ethereum, made a strong step toward decentralization today with the election of the Spartan Council.
A number of long-time community members, including a fund manager, was elected to this council. The council is responsible for making changes to Synthetix to improve the user experience and to bolster adoption.
“The Spartan Council will be responsible for approving proposed changes to the Synthetix protocol. Initially, this will only include SCCPs (i.e. configurable changes on certain aspects on the protocol, such as changing exchange fees or the target C-Ratio), but the aim is to also include SIPs (i.e. more complex changes to the protocol) in the future.”
With this Spartan Council system, the protocol becomes further decentralized and less reliant on the Synthetix team. It is also in line with the direction that many other protocols have been moving in the past few weeks and months.
As we covered previously, Aave underwent a transition in October to get rid of the old LEND cryptocurrency in exchange for the new AAVE cryptocurrency. This transition empowered AAVE users to propose and vote on changes to the protocol.
The DeFi Ethereum ecosystem got a Bitcoin boost this past week with the introduction of BadgerDAO.
BadgerDAO is a Bitcoin-focused DeFi product aimed at improving bitcoin utilization in the Ethereum ecosystem. Its first product, Setts, allows users to earn a return on their bitcoin by depositing it into the protocol. Its second product, Digg, is supposed to be a stablecoin tied to the value of bitcoin.
Many users that transacted with tokenized bitcoin or interacted with leading DeFi protocols in the past were entitled to an airdrop of two to thousands of BADGER. Three Arrows Capital and Alameda Research purportedly got involved in Badger as well, staking their airdropped funds.
Commentators are hopeful that this new protocol will force more Bitcoiners to take time to look at DeFi.
A migration of bitcoin from the main Bitcoin chain to Ethereum will likely turbocharge the growth of the already exponentially growing DeFi space.
Crypto community fires back over proposed regulation
The Ethereum community is firing back over the proposed legislation to force all stablecoin issuers, including ‘issuers’ of decentralized stablecoins, to comply with banking regulation. Many believe that such a law being implemented would wipe out much activity in the DeFi space because so much is predicated on stablecoins being a core collateral asset.
The proposed legislation alleges that stablecoins are effectively “shadow money” that suppresses those that do not have access to financial services.
The Ethereum community is pushing back, arguing that this is anything but the case. Top investors and entrepreneurs in the space, including Balancer co-founder Fernando Martinelli, have donated over $21,000 in ETH or DAI to CoinCenter. CoinCenter is a cryptocurrency advocacy group based in Washington, D.C.
ETH2 Serenity continues to gain traction
The Ethereum 2.0 upgrade, also known as ETH2 or Serenity, continued to gain traction this past week.
According to top Ethereum data site Dune Analytics, there is nearly 1.4 million ETH now locked in the ETH2 deposit contract. That means there is approximately $750 million worth of ethereum currently being used to earn returns on this new chain.
Many institutional and larger names have participated in this launch, including Vitalik Buterin himself, Yearn.finance core developer “Banteg,” and firms such as Ethereum Capital and Bitcoin Suisse.
Ether fund launches on the Toronto Stock Exchange
Today, the Ether Fund, an exchange-traded fund that holds ETH, will begin trading on the Toronto Stock Exchange.
According to Tyler Winklevoss, a Bitcoin billionaire involved in this launch, the fund has already raised $75 million worth of capital from investors looking to acquire exposure to ethereum.
SEC commissioner Hester Peirce talks DeFi
Speaking of regulation and crypto, U.S. Securities and Exchange Commissioner Hester Peirce discussed DeFi in a speech on December 10th.
Seemingly referencing the recent discussions about the proposed stablecoin bill and how that could adversely affect growth in this space, she said that these technologies should be embraced instead of opposed:
“As this technology gains adoption outside and now inside the legacy financial system, we should figure out a way to embrace the personal liberty principles undergirding it. If we were instead to steamroll the technology’s liberty-enhancing features under the weight of regulation, we would lose a lot of the power of the new technology to afford opportunities to people whose autonomy has previously been curbed by, for example, limited access to the traditional financial system, geographic location, social standing, or subjection to a repressive government.”
Other crypto-leaning politicians in the U.S. have also recently vouched for the importance of this space to financial innovation in the U.S.