As bitcoin has rallied, so have ethereum and some DeFi tokens, followed by a large amount of congestion on the Ethereum blockchain
If you’ve been following decentralized finance (DeFi) over recent weeks, you know the price action has been mostly slow. On many days throughout December, top DeFi coins such as Compound’s COMP and Yearn.finance’s YFI were in many cases down against both bitcoin and the U.S. dollar on many days.
But this past week, this all changed.
Once bitcoin hit $34,000 on the weekend, then pulled back to consolidate, ethereum began to rip higher. This corresponded with a strong rally in many Ethereum-based altcoins, which trade against ethereum on decentralized exchange platforms.
DeFi appears to be back in vogue after ether’s breakout past $1,000. Many DeFi tokens are moving toward all-time highs, or in some cases, are even setting all-time highs far above those seen in the summer.
This re-rating in the decentralized finance space comes as the fundamentals of the decentralized finance space have continued to improve. Builders in the crypto space were unfazed by the malaise in DeFi price action throughout October, November, and December.
- DeFi tokens finally climbed higher this past week once ethereum passed the key $1,000 resistance level.
- Coins such as Synthetix Network Token (SNX) hit new all-time highs against the U.S. dollar.
- On Tuesday morning, YFI gained 50% in and of itself due to strong fundamental news
- DeFi continued to gain fundamental strength this past week with the total value locked in this space rising to $20 billion and beyond.
DeFi market update
Like many altcoins, ethereum’s price action was relatively mild compared to bitcoin throughout most of December. While the second-largest cryptocurrency by market capitalization was outperforming the U.S. dollar, against bitcoin, it was plunging.
It reached a point where there were days when bitcoin gained 10% and ethereum only saw gains of 3-4%.
Yet this past weekend, ethereum underwent a decisive surge past $1,000. The cryptocurrency moved from $800 to $1,100 in the span of 24 hours, per OKCoin market data.
This rally had a strong effect on the decentralized finance market.
After ethereum surged past $1,000, DeFi tokens started to gap higher, moving past resistance levels with ease.
It’s worth noting that a majority of decentralized finance coins are actually underperforming ethereum over the past seven days. The DeFi rally has only persisted for a few days, hence this trend.
Yearn.finance (YFI) awakens from slumber as founder Andre Cronje returns to Twitter
Even through the recent DeFi rally, Yearn.finance’s YFI token was largely inactive. The cryptocurrency was stuck consolidating between $21,000 and $25,000, without much of a breakout to be seen.
But Andre Cronje, founder of the leading project, recently released a swath of news and even a new beta product, boosting the YFI price toward $35,000 early Thursday morning.
Earlier this week, analysts noticed that Cronje had begun to interact with a new token he created.called yCredit or StableCredit. This new token came with a new website, yCredit.
This is a new system that plans to allow for interest-free loans, impermanent loss protection, and other solutions to other key issues in DeFi.
Cronje more recently released a Twitter thread and a number of individual posts announcing that Yearn.finance will be working with Alpha Homora, a yield farming platform. This integration will increase the usage of Yearn.finance, of its partner platforms such as SushiSwap and Cover, and of projects such as Alpha Homora:
These news events have had the effect of driving the DeFi market seriously higher. YFI, namely, surged 45 percent on Thursday morning amid this news release.
Layer-two narrative boosts certain DeFi coins
While DeFi moved decisively higher this past week, this rally was marked by a large amount of congestion on the Ethereum blockchain. At one point, it cost upwards of $50 per trade on Uniswap, making centralized exchanges the preferred way for most ethereum holders to trade.
This rally had the byproduct of boosting the value proposition of layer-two scaling solutions. Layer-two scaling solutions, in simple terms, are technologies that migrate transactions from the main Ethereum blockchain to another processing layer, which may sometimes be more centralized.
Loopring, a decentralized payment second-layer solution, saw its native LRC token gain over 100% over the past seven days. Another second-layer solution called xDAI, whose native token is STAKE, also saw an uptick in adoption this past week.
Further, Optimism, an Ethereum development team, confirmed that the soft launch of Optimistic Ethereum is set to take place on January 15th. Optimistic Ethereum is based on a technology called rollups, which we explained in this previous blog post.
Optimistic Ethereum is one of the most hyped-up scaling solutions due to the fact that the team is working closely with Synthetix, a decentralized synthetic asset platform, and Uniswap.
Polkadot takes the stage
By a similar token, Polkadot (DOT) enjoyed an extremely strong rally this past week.
Polkadot is a blockchain that will soon allow developers to build so-called parachains, which will host applications in a similar way to how Ethereum hosts smart contracts. Many think that this technology makes the cryptocurrency a potential competitor to Ethereum.
DOT moved from the $5-6 region in late December to highs of nearly $11 this past week.
Wilson Withiam from Messari has said that the ongoing price action of DOT may be related to Polkadot expected to soon release parachains:
“Recent market sentiment aside, Polkadot and Kusama are drawing closer to the arrival of parachains, which could be improving its near-term outlook. Right now, Polkadot is a staking and governance chain. Parachains should differentiate it and drive DOT’s intended utility.”
U.S. banks can now deal in stablecoins
Stablecoins have been put under the microscope recently as their market capitalization has grown exponentially.
In December, House Democrats introduced a proposed bill that would regulate stablecoin issuers in a similar manner to banks. This means that these issuers would need to ensure that all users are verified and large transactions are reported to prevent crime enabled by stablecoins. The politicians that introduced this indicated that stablecoins can be a medium of crime.
While many thought this would be the end of stablecoins, this may not be the case.
The U.S. Treasury’s Office of the Comptroller of the Currency, which is basically the ultimate banking regulator in the U.S., wrote on January 4th that banks will be able to run nodes and use stablecoins:
“The Office of the Comptroller of the Currency (OCC) today published a letter clarifying national banks’ and federal savings associations’ authority to participate in independent node verification networks (INVN) and use stablecoins to conduct payment activities and other bank-permissible functions.”
Acting Comptroller of the Currency Brian P. Brooks wrote in the letter that this clarification is being done to help customers who are “increasingly demanding the speed, efficiency, interoperability, and low cost associated with these products.”
Some within the DeFi space are optimistic that this will eventually culminate in systems where users can directly deposit capital into their bank account, then link that capital to a DeFi platform to earn a yield or to do other financial activities.