It’s been another strong week for the decentralized finance (DeFi) market, even though bitcoin and ethereum faced a 25-30% correction earlier this week
Leading DeFi tokens such as SushiSwap (SUSHI), Yearn.finance (YFI), Aave (AAVE), and others gained over 25% over the past seven days. For context, ether only saw 1.0% gains over the past week, per OKCoin market data.
DeFi is outperforming other altcoins for the second week in a row, as we explained in a previous DeFi Update.
This relative rally in DeFi tokens against bitcoin and ethereum continues to show how this segment of the cryptocurrency market has become somewhat uncorrelated with the large-cap players.
DeFi’s overall rally may be related to comments made by a senior U.S. banking official that may indicate they see decentralized finance—or blockchain-based financial applications—as a viable tool for the future.
This space also appears to be garnering some form of mainstream traction. Mark Cuban, the billionaire known for his involvement in “Shark Tank,” this past week commented that he has been testing Aave. It is unclear whether or not this means he has invested in DeFi tokens, though it appears he is at least testing the basic components of the protocol.
TL;DR
- DeFi tokens continued to rally this past week, with prominent names like SUSHI, YFI, AAVE, and COMP gaining over 25% against the U.S. dollar.
- Decentralized finance has done relatively better than bitcoin and ethereum this past week.
- Brian Brooks, the Comptroller of the Currency, wrote in a Financial Times article that he thinks DeFi does have potential and that U.S. regulators should seek to establish a fair framework to properly address the growth of autonomous financial services.
- Mark Cuban, discussed Aave this week, and noted that he thinks the crypto market currently looks similar to the dotcom boom.
- The Yearn.finance ecosystem is experiencing controversy right now over a proposal to mint 1,000 YFI tokens.
DeFi market update
DeFi tokens enjoyed a strong rally this past week despite some volatility in the bitcoin and ethereum prices.
The move higher is seemingly a result of a confluence of positive news events for the different leading decentralized finance applications.
SushiSwap’s developers released the 2021 roadmap for the project, which outlined their ambitions for this upcoming year. The roadmap mentioned the development of a v2 iteration of the protocol, a new product called BentoBox for traders, along with other solutions.
The Aave protocol hit a total value locked of $3 billion, making it the second-largest DeFi protocol aside from MakerDAO.
Synthetix is on the verge of launching a layer-two scaling solution in collaboration with Optimism, which runs the Optimistic Ethereum network. Optimistic Ethereum is a second-layer scaling solution that uses a technology called Rollups to reduce transaction fees and improve transaction times.
These developments are expected to drive long-term value to and demand for these DeFi protocols.
U.S. banking regulator talks DeFi in Financial Times report
The overall decentralized finance space also got a boost this past week as it got a nod from a senior U.S. regulator.
In an op-ed for the Financial Times published on Tuesday morning, Brian Brooks, the acting Comptroller of the Currency, said that decentralized finance projects are ‘self-driving banks’ that are likely to go mainstream:
“Other DeFi projects include decentralized exchanges that allow users to trade without brokers, and protocols for lending that do not involve loan officers or credit committees. Although these ‘self-driving banks’ are new, they are not small. They are likely to be mainstream before self-driving cars start to fly.”
For a bit of context, the Office of the Comptroller of the Currency is a branch of the U.S. Treasury responsible for regulating banks that operate in the United States. Brooks is an acting Comptroller and is expected to leave his office shortly.
In that same op-ed, the regulator said that the U.S. should create a fair framework to apply to these protocols.
“Could the OCC even grant a national bank charter to open-source software that manages deposit-taking, lending, or payments, if it doesn’t have officers or directors? Not yet. Under current law, drawn up on the assumptions of the early 20th century, charters can only be issued to human beings. But those antiquated rules should be revisited, just as regulations that still mandate the use of fax machines should be.”
While Brooks is on the way out, the DeFi community and market immediately reacted to the op-ed by bidding decentralized finance assets higher.
Mark Cuban talks Aave
Mark Cuban, the billionaire owner of the NBA’s Dallas Mavericks and a “shark” on “Shark Tank,” this week discussed Aave.
First and foremost, Cuban said early this week that he thinks the crypto market currently looks similar to the dotcom boom and bust at the turn of the century. He said that Bitcoin, Ethereum, and a few others are networks or protocols that will survive this cycle. Cuban caveated that by stating that the only value bitcoin has is based on the supply and demand, suggesting that he sees no intrinsic value in the cryptocurrency.
Someone responded to that by critiquing the opinion, saying that there is value in sending money over decentralized networks.
Cuban then responded by noting that the transaction fees, the “gas,” is extremely preventative in its current state:
“Except the gas is always an issue. Just the cost of moving crypto to AAVE is crazy expensive and the number of non crypto options will increase.”
He added in a later tweet that he chose the “normal” gas rate when he used the protocol.
Cuban did not expand beyond that point but many found it notable that he mentioned Aave and talked about it as if he had used the protocol.
Discussion erupts over a proposal to mint more YFI
There is some controversy in the Yearn.finance ecosystem right now over a proposal to mint 1,000 YFI tokens, despite there being a long-standing sentiment that there will only ever be 30,000 total coins.
The proposal was brought up two days ago that suggested there was not enough funding for the Yearn.finance team, as payments largely come from the treasury now, which is being depleted. As the proposal’s author wrote:
“Capital allocators–those who store money in smart contracts–are mercenaries. They go where the highest yield is. This was the core insight that led to Yearn’s growth. However, our developers are not mercenaries. They are being treated as servants. But they don’t have to be here. These people could get jobs anywhere.”
They suggested a one-time issuance of 1,000 YFI tokens to core developers to pay for the development of the protocol.
This was brought up shortly after Andre Cronje, founder of Yearn.finance, released a Medium post outlining that it was a mistake for him to distribute all YFI coins:
“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.”
Many investors have responded to the proposal with either confusion or acceptance.
Framework Ventures, the largest holder of YFI, wrote that they are in support of the proposal:
“We support this as the largest YFI holder – we want to see a plan for allocation of YFI-denominated funds that makes sense, but pending that, we are in. 30K memes are cool, having a sustainable project with low levels of inflation is cooler.”
Santiago Roel Santos, a partner at Parafi Capital, also echoed this opinion in his own comment on the situation.
There are some that have countered this sentiment, though.
DeFi investor Qiao Wang said that just because public companies can dilute their shareholders for operational purposes doesn’t mean that protocols should follow:
“As a small-time YFI holder I strongly oppose to 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 biggest concern is that by breaking the social contract that exists around the 30,000 YFI supply cap, there may be a loss of faith in the developers and in the broader Yearn.finance ecosystem.
EIP-1559 ready?
Ethereum users have been paying extremely high gas fees over recent weeks and months.
Earlier this week, during the market correction, the cost of Ethereum transactions skyrocketed to over 500 Gwei. This coupled with the growth in the ETH price meant that Ethereum users were paying over $50 to transact on Uniswap and even more to complete more complex DeFi transactions.
This value has mostly accrued to miners, though soon it may accrue to holders of ether.
A Twitter account called “Matterhorn” recently noted that discussions by Ethereum core developers indicate that EIP-1559 is ready for production. 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.
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