This week’s DeFi update covers Ethereum fees, new ETH all-time highs and continued DeFi market growth.
It’s been yet another explosive week for Ether and the decentralized finance market. Per OKCoin market data, Ethereum’s native coin is now trading for over $1,850, shattering the previous all-time high of $1,840 that it set just a couple of days ago on Feb 10. ETH’s move to new all-time highs comes as Bitcoin also pushes new ATHs, reaching almost $49,000 per coin this week shortly after Tesla was revealed to own $1.5 billion worth of the leading cryptocurrency.
While ETH pushed to new all-time highs this week, the Ethereum network remained congested, leading to continued speculation and demand for scaling solutions and alternative blockchains. The native crypto assets of Polkadot, Avalanche and other potential Ethereum competitors enjoyed strong rallies over the past few days.
The DeFi market as a whole — where the majority of applications are based on the Ethereum blockchain — got a big boost this past week when the St. Louis Federal Reserve’s journal published a paper supportive of emerging space.
TL;DR
- ETH continued to move to new all-time highs this past week, passing $1,850.
- The second largest cryptocurrency has stabilized around this ATH as BTC and altcoins have pushed to their own new highs.
- The narrative of Ethereum network congestion continued this past week, driving demand for ALGO and other native coins of alternative smart contract blockchain protocols.
- The DeFi market got a big boost this past week when the St. Louis Fed published a paper from a blockchain-focused professor calling DeFi a potential paradigm shift in financial services.
DeFi market surges, again
According to OKCoin market data, one of the biggest winners in the decentralized finance space this past week is Yearn’s YFI token.
The crypto asset set new all-time highs this past week, surging over 50% to $51,000 over the past two days. The notable growth comes despite the exploit of the Yearn protocol’s DAI Vault, which occurred last week.
This rally in the YFI price comes on the back of a number of positive fundamental events for the protocol. These include reparations for those affected by the DAI Vault hack, plans for a new user interface, a partnership with another top application, Badger Finance, and the implementation of a new token economics model with the goal of long-term growth of the Yearn protocol.
Other DeFi platform tokens, such as AAVE, UNI, and COMP, also experienced notable moves to the upside this past week.
St. Louis Fed publishes paper on DeFi
DeFi got a big fundamental bump in mainstream recognition this past week with the release of a paper by Fabian Schär, a professor at the University of Basel who focuses on blockchain and financial technologies. He is a member of the Center for Innovative Finance, which is a part of the university that is focused on the development of financial technology.
Schär’s paper indicated that the rise of decentralized finance could lead to a “paradigm shift in the financial industry.” The paper indicated that while DeFi protocols still carry certain risks on the legal and security fronts, they have “interesting properties in terms of efficiency, transparency, accessibility, and composability” that may “potentially contribute to a more robust and transparent financial infrastructure.”
The paper outlined key innovations in the space, including automated market makers, decentralized stablecoins, flash loans, and other primitives that make DeFi a potential long-term competitor to many of the traditional, centralized financial systems that exist today:
“DeFi has unleashed a wave of innovation. On the one hand, developers are using smart contracts and the decentralized settlement layer to create trustless versions of traditional financial instruments. On the other hand, they are creating entirely new financial instruments that could not be realized without the underlying public blockchain.”
Alternative smart contract blockchains gain steam as Ethereum remains congested
Once again, as we indicated in last week’s DeFi Update, the Ethereum network faced some serious congestion this past week.
The cost of using the Ethereum network (gas) this past week consistently sat between 100 to 200 gwei, at times reaching as high as 400 gwei. In USD terms, the higher end of the fee spectrum for transacting ERC20 tokens is currently near $29, while swapping via Uniswap (one of the most popular decentralized exchanges) could cost up to $89, according to data from Etherscan. Fees at this level make it extremely prohibitive to trade on platforms like Uniswap, or transact in Ethereum-based tokens of any kind, including giants like Tether’s USDT stablecoin.
This congestion resulted in a strong narrative shift around if Ethereum will be the network for all DeFi transactions to settle in the near future, as long as second-layer scaling solutions and protocol upgrades to Ethereum — like the major Ethereum 2.0 upgrade, currently in progress — are slow on the front of development and adoption.
Coins such as ALGO (which was listed on OKCoin this week), DOT and AVAX — the native coins of the Algorand, Polkadot and Avalanche networks, respectively — saw major gains over the past seven days. Both Polkadot and Avalanche are expected to have a large number of DeFi-focused applications once both blockchains fully roll out smart contract support.
While ALGO, DOT and AVAX are moving higher, it’s worth pointing out that on a usage basis, Ethereum (even in its current version, before 2.0) remains by far the dominant smart contract blockchain and ETH the clear market leader among them.
Some think this may remain the case as long as developers of existing Ethereum protocols continue to focus their efforts on Ethereum as opposed to competing blockchains.
Synthetix to add tokenized Tesla stock
One of the biggest pieces of news over the past month in both traditional markets and in crypto is the drama and debacle surrounding trading of GameStop stock.
To recap, in late January, stock trading app Robinhood restricted trading for GameStock’s GME, among other stocks, while other brokerages stepped in with similar preventative measures. This occured after retail traders participated in what evidently was a coordinated price pump of GME, led by members of the subreddit r/WallStreetBets, resulting in a major rally and short squeeze.
Robinhood stated that restricting GME trading was in line with the U.S. SEC’s capital requirement laws. As these rules were not made transparent to market participants, there was widespread outrage across America.
As Robinhood and other stock trading platforms restricted trading of certain securities, cryptocurrency investors naturally asked how decentralized applications can amend the issues associated with centralized systems.
Possibly related to the push for decentralized trading solutions, and Tesla’s prominent BTC buy this week, derivatives liquidity protocol Synthetix became yet another exchange to offer trading of a tokenized version of TSLA,. The protocol this week voted to add a new synthetic asset called sTSLA, which will track the price of Tesla’s stock, but in a decentralized and permissionless manner.
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