This past week saw a dive for DeFi assets, developments in the space continue, and institutional investors remain optimistic based on fundamentals
Leading decentralized finance (DeFi) tokens deviated strongly from bitcoin and ethereum over the past seven days, unlike the previous week. While the two leading cryptocurrencies continued to trade in their respective ranges, DeFi tokens dove lower by dozens of percent.
At the lows of Thursday’s trading session, Yearn.finance’s YFI traded at $12,500, as per OKCoin market data. For context, the cryptocurrency traded as high as $26,000 last week and $44,000 just weeks earlier. Similar declines were seen in other leading DeFi tokens. But today, YFI sits at about $17,680.
Despite the strong correction, analysts and fund managers within the space remain optimistic due to fundamental trends, including the fact that capital continues to enter DeFi through stablecoins, venture investors, and private equity placements.
- As capital cycled into Bitcoin and other altcoins, top DeFi tokens plunged over the past week.
- At their lows, the average DeFi token was down 60–80% from all-time high set some time over the past six weeks.
- The rapid correction of this sector and the strength of underlying fundamentals has led many analysts to share bullish sentiment.
- This may present a larger buying opportunity before a secondary DeFi boom in 2021, one fund manager said on Twitter.
- Aave continued to roll out its new AAVE cryptocurrency.
- A physical piece of artwork, which came with its own non-fungible token (NFT), sold in a Christie’s auction for over $130,000.
- MetaMask just surpassed one million monthly active users, 300% higher than this metric was at a year ago.
Strong DeFi correction may not be bad
It’s been a brutal past few weeks for the DeFi market. Independent cryptocurrency researcher “Ceteris Paribus” shared data on October 4th indicating that the average DeFi coin had declined 61.5% from their respective all-time highs. After he published this data, leading coins in the DeFi space continued to dive lower, with investors capitulating en-masse as there was little buy-side support.
The worst-hit tokens were Curve DAO Token (CRV), SushiSwap (SUSHI), bZx’s BZRX, Swerve (SWRV), and Mstable’s Meta — all of which have declined by over 80 percent since their all-time highs. Save for BZRX, which was adversely affected by a hack on the bZx protocol, the tokens listed saw strong declines due to extremely inflationary token economics models.
Though, even “scarce” DeFi tokens such as Yearn.finance’s YFI and Maker (MKR) have seen strong corrections from their respective highs. YFI was hit especially hard this week as public backlash over bugs spread and as certain Ethereum wallets began to publicly short the asset with tens of millions of dollars of collateral.
Analysts remain optimistic despite the rapid DeFi decline. In fact, some argue that this may be one of the best buying opportunities in many months. Others say that an opportunity to “buy the blood” is nearing, at the very least.
Alex Krüger, an economist that closely follows Bitcoin and cryptocurrency, recently said that the ongoing DeFi correction is rather reminiscent of the initial coin boom collapse in early to late 2018. There are two key differences, though: 1) some DeFi tokens have risen and crashed much faster than their ICO predecessors, and 2) many tokens that have undergone this correction have underlying fundamentals and intrinsic value.
The underlying fact that compared to most ICOs, DeFi is actual technological innovation, Krüger remarked, suggests a bottom is nearing:
“Most 2018 ICOs were scams. Many of these 2020 DeFi tokens are actually good projects that unfortunately were bought up too fast in a rabid frenzy. Market is likely close to its bottom and should experience a bull run in 2021, along with bitcoin.”
Ari Paul, CIO of crypto fund BlockTower Capital, echoed this line. In reference to a comment of his from September that asserted that DeFi could drop 85%, Paul said on October 6th that we are “getting closer in both time and price for DeFi.” By getting closer, he means getting closer to a point at which investors should look to accumulate longer-term holdings.
This isn’t exactly postulation: data shows that assuming last month’s valuations apply now, DeFi currently is dramatically undervalued.
Jeff Dorman, CIO of “crypto fund of crypto funds” Arca, indicated that over the past month, a dramatic divergence has formed between token prices and the delta of annualized revenues for top protocols over the past month. Multiple protocols such as MakerDAO, Uniswap, and Aave had revenue changes in the hundreds of percent over the past month despite their coins dropping by dozens of percent.
The idea is that with the proper governance proposals, protocol revenue will accrue as value to holders of governance tokens, whether that’s through buy-backs or through dividends.
Aave launches a new cryptocurrency to replace LEND
Leading DeFi protocol Aave is scrapping its old cryptocurrency, LEND, in exchange for a new token fittingly called AAVE. LEND was originally the native token for ETHLend, Aave’s predecessor that lacked the adoption Aave now has. The process of converting LEND into AAVE began last Friday. A portal has been opened that allows users to deposit AAVE with LEND at a ratio of 100 LEND to one AAVE.
Aave is initiating this process for more than a cosmetic change to its ticker symbol: by introducing AAVE, a “safety module” can be introduced that will allow users to stake their tokens within the protocol to “act as insurance against Shortfall Events.” This staking module will allow users to earn AAVE over time, along with a “percentage of protocols fees.”
With the launch of AAVE, there will also be a three million coin “Ecosystem Reserve” that will allow the protocol to bootstrap itself further as “governance sees fit.” This means that Aave could introduce formal liquidity mining incentives. So far, it has avoided this due to already having strong network effects that have driven parabolic growth without also driving inflation.
Bitcoin-themed art and NFT sells in Christie’s auction for over $130,000
A Bitcoin-themed art piece and non-fungible token sold for $131,250 in a Christie’s auction this week. A non-fungible token (NFT) is a unique token based on a blockchain often used to represent ownership of art or a collective. While not explicitly finance per se, many in the DeFi space have co-opted NFTs as a crucial part of the decentralized finance revolution.
The art piece that sold is called “Block 21,” one of forty circular slabs that contains the “founding code behind Bitcoin.” Each slab contains different portions of the original codebase of Bitcoin, written by Satoshi Nakamoto. These slabs have no technological purpose, of course, as they are not full nodes. The idea with the project is to distribute these slabs around the world in a symbolic gesture of decentralization:
“Once distributed globally, these 40 fragments of the code will decentralise the artwork — drawing up a global network of collectors, where no one central authority will hold all the code.”
This sale was especially notable as the anonymous buyer of the art also got a non-fungible token (NFT), which will represent ownership of the art. Somewhat ironically, the NFT is based on Ethereum.
MetaMask hits one million monthly active users
This week, MetaMask announced that it has exceeded one million monthly active users, up from the 264,000 MAUs recorded last year. MetaMask is an Ethereum Virtual Machine-compatible smart wallet used by most DeFi users as it allows users to interact with smart contracts.
Unsurprisingly, MetaMask indicated that a key facet of this growth has been the rapid uptick in adoption of DeFi:
“Additionally, over the last twelve months, significant growth in the adoption of DAOs, Web3 games and the rapid consumer uptake of DeFi products and services has further accelerated our growth curve… They want to invest, sell, lend, borrow. They want to use sites like Uniswap, Yearn, Curve, Maker and Aave to get that job done. MetaMask is simply the connective tissue.”
Santiago R. Santos, a partner at DeFi-centric crypto fund Parafi Capital, says that this milestone is a sign that DeFi is reaching “escape velocity” despite the loss of bullish momentum in Ethereum coins. Other signs he mentioned include stablecoins hitting a $20 billion aggregate market cap, Ethereum scaling solutions launching, and companies rolling out easy-to-use fiat on-ramps into DeFi coins.