DeFi tokens took it relatively slow this week in comparison to bitcoin while industry developments strengthened ETH’s support
Decentralized finance tokens continued to lag behind bitcoin this week as the leading cryptocurrency shot to fresh all-time highs at $23,800. While BTC is up 25% in the past seven days, DeFi coins such as YFI and AAVE are only up by approximately 10%, per OKCoin market data.
This past week, leading protocols and decentralized finance technology announced upgrades as Ethereum garnered a key institutional supporter. Analysts expect these news events to drive macro growth in the DeFi market, even if there is ongoing consolidation in top DeFi plays like Yearn.Finance’s YFI, Compound’s COMP, and Uniswap’s UNI in the near future.
- DeFi tokens fell behind bitcoin this past week as the leading cryptocurrency shot to new all-time highs.
- Analysts think this underperformance is a result of the magnitude of BTC’s rally and potential regulations that could affect DeFi.
- Once again, the fundamentals of the space moved forward this week with notable developments regarding a leading Ethereum scaling solution, Optimism, and new products from top apps.
- OKCoin launched Earn, a tool that provides easy access to DeFi protocols, with up to 20%* APY on stablecoin holdings.
- CME Group will be launching ethereum futures in February 2021 .
- Goldman Sachs executive Raoul Pal commented that ethereum could surpass bitcoin’s market capitalization in the upcoming bull cycle.
DeFi market update
Analysts pin the underperformance in the DeFi market to two trends:
First and foremost, when bitcoin rallies quickly, it can suck the air out of altcoins. We saw this in early October and November, where there were some altcoins that were actually losing value against the U.S. dollar as BTC pushed to $12,000, then $14,000, and beyond. This is also a phenomenon that has been seen in previous bull markets.
On the other hand, altcoins are expected to outperform if bitcoin enters a period of consolidation. The theory goes that once bitcoin begins to consolidate, investors look to related investments that can outperform.
Secondly, there are some fears that regulation from the U.S. could suppress decentralized finance.
For weeks, there have been rumors circling regarding potential legislation from the U.S. Treasury that will require virtual asset service providers to report all withdrawals to wallets. More concretely, there have been moves made to crack down on the presence of stablecoins in the cryptocurrency market due to fears that these assets are acting as fuel for the shadow economy.
There are concerns that these moves may result in further pressure on decentralized finance applications, which require users to have custody of their own funds (often stablecoins) to operate correctly.
Prominent fund managers and traders in the space have argued that since DeFi tokens are actually entitlements to cash flows to some extent and carry a governance premium, it can be argued that they should move differently than tokens that don’t provide a cash flow like BTC.
OKCoin launched Earn with up to 20%* APY on stablecoin holdings
Earn is a new high interest tool for investors that makes DeFi easy to use, providing access to three high yield DeFi protocols: Curve, Yearn.finance, and Compound. OKCoin covers the gas fee and doesn’t charge a service fee which saves users from having to pay the three different transaction fees that are required to access DeFi protocols.
The tool pulls high yield interest rates directly from each protocol, while providing a low entry bar for customers. Recently, these high yield pools have paid up to 20% interest on deposited assets. Read more about Earn.
*APY rates are variable and subject to hourly change.
Optimism solution draws closer
Over the past week, as the market has shot higher once again, DeFi became congested. Multiple times this week ethereum transactions cost in excess of 300 Gwei, a level that makes it near impossible for small investors to use DeFi. At 300 Gwei, for instance, it costs around $40 to trade on Uniswap.
Developers have been moving forward with ways to scale the Ethereum blockchain.
Optimism, the team behind a second-layer scaling solution called Optimistic Ethereum, revealed that they are in the “final phase” of testing.
As we covered in a previous blog, Optimistic Ethereum is a second-layer sidechain secured by the main Ethereum blockchain. Funds are deposited into a smart contract on the mainchain, which is then controlled by the rollup’s operators and users. This allows for extremely high transactional throughput at low cost as funds in the original contract are not actively moved between owners.
Optimistic Ethereum’s launch has long been in the works, with many arguing that it will spark a renaissance in DeFi innovation and usage. Synthetix and Uniswap are among the many DeFi protocols looking to launch on Optimistic Ethereum.
CME ethereum futures finally arrive
If you’ve been reading our recent Bitcoin Moves editions, you know the recent emphasis that the crypto industry has placed on institutional investment.
Wall Street has been flocking to bitcoin en-masse as they look to hedge their portfolios against unprecedented macroeconomic turmoil and bonds failing to provide yields.
But there is data indicating there is an increasing amount of Wall Street support for ethereum. Case in point: it was confirmed this past week that the CME Group, one of the world’s biggest financial exchanges, would be launching ethereum derivatives, namely futures.
Ethereum has seen increased institutional interest over the past few weeks, as evidenced by Wall Street investor Paul Tudor Jones discussing it.
Analyst and economist Alex Kruger calls these futures “extremely bullish.”
“People mostly remember how bitcoin hit its top on 2017 the exact day the CME $BTC futures launched, and proceeded to crash right after. They forget that the CME launch drove price from 6K to 20K, +225% in 2.5 months. The launch of CME $ETH futures is extremely bullish.”
The CME will be launching the contracts on February 8th.
SushiSwap looks to Polkadot
Polkadot, the second-fastest growing smart contract chain after Ethereum, will soon garner the support of SushiSwap.
The decentralized exchange’s co-founder, “0xMaki,” announced this past week that SushiSwap will soon “open” on Polkadot. He wrote on December 14th:
“If you LP’ed past end September you still have 2/3 of your rewards that will be available in 6mo. and you will receive moonSushi when we open on Polkadot.”
This appears to be the first Crypto Twitter has heard of SushiSwap’s intention to go cross-chain.
There’s a good reason why SushiSwap is pursuing Polkadot, though. Electric Capital, a developer-focused venture fund, published a report earlier this month highlighting that Polkadot has a vibrant developer base only second to Ethereum. The network purportedly has more transactions now than Ethereum did at the same point in its life.
We listed Polkadot’s native token, DOT, earlier this year.
Could ethereum surpass bitcoin’s market cap?
Macro investor and former Goldman Sachs executive Raoul Pal postulated this week that ethereum could surpass bitcoin’s market capitalization in the upcoming bull cycle.
His argument was that bitcoin is likely to be the base money of a digital economy, though not the layer that captures value from intermediate transaction settlement, secondary markets, etc.
“My hunch is BTC is a perfect collateral layer but ETH might be bigger in market cap terms in 10 years for the reasons above. Money and collateral is just the base layer. Everything builds on top. The store of value is collateral, the trust layer and exchange of value is bigger.”
To contextualize this, there is currently around $20 trillion worth of M2 money in the U.S. But, on top of that system is built hundreds of trillions, even quadrillions, worth of financial products via derivatives.
Pal’s argument is that Ethereum will be the layer on which these derivatives and second-layer products are built, not Bitcoin.