Get caught up to speed with our DeFi report: this is everything you need to know now about Ethereum and DeFi assets
It’s been somewhat of a tumultuous past week for the DeFi space. At one point, closer to the weekend, there were many top decentralized finance tokens doing well: Yearn.finance (YFI) pushed back toward $40,000, AAVE topped $200, and other cryptocurrencies set key milestones.
However, the market has since reset as bitcoin and ethereum have tapered lower quite strongly. BTC now trades for $33,000 while ethereum has slipped toward the $1,225 range—below the all-time highs established earlier this week.
This move lower has pushed down some DeFi assets like Synthetix Network Token (SNX) and Compound (COMP). However, it’s worth noting that the re-rating of altcoins against bitcoin continues as BTC is actually one of the worst-performing cryptocurrencies in the top 20 this past week.
TL;DR
- DeFi tokens corrected over the past few days from their recent highs due to weakness in bitcoin and ethereum prices.
- A majority of tokens like YFI and AAVE are still up over the past seven days as they continue to re-rate against BTC.
- Strong fundamentals for DeFi are boosting prices, along with natural capital rotation.
- Yearn.finance came under the microscope this past week when it rolled out v2, a long-awaited upgrade to the yield farming protocol.
Ethereum on-chain fundamentals better than ever
Ethereum’s on-chain fundamentals are better than ever, boosting the overall narrative of growth in the cryptocurrency market and in DeFi especially.
Venture capitalist Spencer Noon broke down Ethereum’s on-chain fundamentals in an extensive Twitter thread. The following is a breakdown of some of the points he brought up in the Twitter thread.
Ethereum’s transaction fees continue to dwarf other blockchains and even Bitcoin. While some see this as a bad thing, in that many smaller users cannot transact in a cost-efficient manner, this shows how much demand there is for Ethereum transactions and applications. It’s worth noting that much of these transaction fees are from DeFi applications, further showing the prominence of this space. Noon wrote:
“Ethereum continues to dwarf the entire crypto space in terms of fees paid ($7.25m daily avg) — proving it’s the most useful network in the world.”
Ethereum has also been able to see a large increase in its active addresses, which now sits at ~550,000 per day. This is an all-time high and is up by 100% over the past 12 months.
Yearn v2
One of the biggest project-related news this past week is that of Yearn.finance upgrading to Yearn.finance v2.
Yearn.finance is a multi-faceted DeFi ecosystem focused on allowing users to obtain access to yield-generation strategies that do not cost much in transaction fees and that are accessible to retail individuals. Yearn v2—or Yearn Vaults v2, to be more specific—was announced a few months ago. The solution was promised to be an improvement to the user experience and user interface of the Yearn.finance ecosystem.
This past week, YFI developers rolled out Vaults v2, implementing a new design, along with new yield farming strategies to help improve returns for Ethereum users.
YFI immediately surged on the news. There was previously a lot of uncertainty about the launch and how it would affect the cryptocurrency, which has been a strong underperformer to other DeFi coins.
While Yearn v2 is technically live, it’s far from done.
Yearn’s developers are currently working on integrations with other decentralized finance platforms to try and improve yields for depositors. Key integrations include those with Cream and Alpha Homora. Andre Cronje, founder of Yearn, expects these integrations to allow users to obtain multiple higher yields on their capital than they would with Yearn v1.
YFI mining debate continues
In our last DeFi Update, we talked about the controversy over the discussion to print more YFI tokens.
To recap, Cronje expressed frustration that he distributed all tokens and kept none for himself and the team. This inequity has resulted in team members having little stake in the Yearn.finance ecosystem, which means some have easily been poached by other projects offering higher incentives.
“When I decided to distribute YFI 100% it was because I believed it would allow me to exit to the community. However, I am still blamed if the price goes down, I am still constantly plagued by ‘when next release’, ‘when update’, etc messages. I still have all the responsibility and expectation, except I have 0 of the reward or upside,” Cronje wrote.
These comments resulted in the community suggesting that Yearn.finance developers should mint 1,000 YFI, or a number along those lines, to fund development and to ensure that they have access to the resources to scale the protocol.
This immediately saw some pushback from holders, who argued that there were better ways to solve this than purely minting the tokens:
“As a small-time YFI holder I strongly oppose this proposal. Just because public companies do similar things doesn’t mean it’s the right thing to do. A better approach is to incentivize core developers by giving them a cut of the cash flow generated by the protocol.”
The tables seem to be turning once again, though.
Venture capitalists, along with Yearn developers, rolled out a proposal to fund “Yearn’s future” on Wednesday. The proposal, if implemented, will mint 6,666 YFI, distribute tokens to existing contributors, then leave the rest to a community-owned Treasury to be distributed in the future to boost the ecosystem. It was mentioned that Yearn’s tokenomics are unfair for developers compared to other “decentralized” protocols:
“Projects such as Uniswap, Aave, Synthetix, Compound, 1inch, Curve, and Balancer hold anywhere from $300 million-$2.13 billion in tokens aside for [contributors], with the average being between $500-600 million. This is generally 20-30% of the total token allocation. Newer projects such as SushiSwap, Badger, CREAM, Harvest, and Cover vary more between teams, but allocate between 10-25% of token supply to their teams and early contributors.”
With the amount of notable investors and developers behind this proposal, it may pass, despite its controversy in some circles.
Aave is scaling via Matic
A recurring discussion in the DeFi community is the one of scaling: how can the costs of daily transactions be lessened in order to improve and increase usage?
According to The Defiant, Ethereum second-layer solution Matic is working on a solution for Aave. Aave’s aTokens, which are yield-bearing assets, can be migrated to Matic to allow users to trade with each other for much lower fees than using Ethereum proper.
This news comes as other projects are pursuing scaling solutions, including Synthetix.
Synthetix rolled out a scaling solution late last week with the Optimistic Ethereum team. This scaling solution, called Optimism, will allow for faster and cheaper transactions to take place.
Optimism is expected to roll out a scaling solution with Uniswap in the future, which is why some say UNI was rallying strongly this past week.
EIP-1559 sees some pressure
As we mentioned in the previous DeFi Update, it was widely rumored that the EIP-1559 technical spec was ready to be implemented. EIP-1559 is a proposal that would allocate some of the transaction fees of each Ethereum transaction to a burn. The idea is that this will decrease ethereum’s supply or at least decrease the inflationary pressure from block rewards.
While many ether holders think this will accrue to them via an increase in the ether price, miners are pushing back as it may mean they get less block rewards, decreasing their income.
A number of smaller Ethereum mining pools, namely Flexpool, have joined together to create a site called #StopEIP1559. The idea is to stop ethereum users from adopting the proposal. Flexpool wrote on the matter:
“At Flexpool, we feel it is not right to support an initiative that proposes to pay our miners significantly less for the same work. No money is being saved on transactions; instead, it’s being paid then destroyed. Our miners don’t support EIP-1559 and thus are against it too.”
What’s interesting is that not all miners are onboard. F2Pool’s co-founder, Chun, says that he supports EIP-1559.
Polkadot sees influx of demand, becomes fourth-largest crypto
Many investors within DeFi have been eyeing Polkadot (DOT) over the past few weeks as it has ascended the crypto ranks. As of this past week, DOT is now the fourth-largest cryptocurrency in circulation.
DOT surpassed XRP’s market capitalization over the past ten days as it has moved to all-time highs, nearly reaching $20.
The crypto-asset is around $7 billion shy of USDT’s market capitalization.
The rally in the value of Polkadot’s native token comes as there has been a growing demand for scaling solutions or Ethereum alternatives due to high gas fees and a lack of transactional throughput.
Polkadot is in the midst of preparing for the launch of so-called Parachains, which will be individual blockchains specific to certain projects and applications linked to one another within the Polkadot ecosystem. Many expect DOT to present somewhat of a hedge against Ethereum, which has by far been the biggest DeFi ecosystem thus far.
We listed Stacks (STX)!
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Stacks is a project focused on allowing developers to build decentralized applications (dApps) anchored to Bitcoin. Stacks is looking to help foster a BTC-focused yield farming and decentralized finance ecosystem that offers users the security and network benefits that Bitcoin has.
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