The decentralized finance market surged higher this past week despite stagnation in the price of bitcoin for most of the week. Top Ethereum-based tokens enjoyed rallies against USD in the double-digit percentages, with many moving to all-time highs.
DeFi-related tokens such as Uniswap’s UNI and Aave’s AAVE moved to new all-time highs this week as the space continued to see positive developments.
The biggest story of this past week in DeFi was arguably the controversy around coordinated price pumps of select traditional stocks — namely GameStop (GME) and AMC Entertainment (AMC) — and the ensuing chaos on stock trading platforms, most infamously Robinhood. Many crypto analysts and industry influences, especially on Twitter, noted that the debacle validates the use case of decentralized financial applications, along with major decentralized cryptocurrencies like BTC and ETH.
Even Mark Cuban, the billionaire owner of the Dallas Mavericks, discussed the GME short squeeze, Robinhood’s actions and trading on DeFi platforms in a Twitter thread this morning. DeFi and crypto also got validation from Cuban earlier this week when he announced that he is involved in the non-fungible token, or NFT, market.
- DeFi saw a strong rally this past week despite BTC continuing to bounce between $30,000 and $34,000 for most of the week before today’s rally to over $38,000.
- The price of DeFi tokens such as UNI, COMP, and AAVE saw notable growth.
- The resurgence in the DeFi market comes as this space has continued to see positive fundamental trends.
GameStop controversy drive DeFi narrative
By far the biggest news of this past week is GameStop, the brick and mortar video game retailer. GameStop’s shares, which trade under the ticker GME, have been growing over the past several months and went on a tear over the past week, culminating in an all-time high pump mid-week.
While this may sound like it has nothing to do with crypto or DeFi, recent events have formed a connection.
The lockdown in 2020 drove many professional money managers to short GME, to the point that there were more shares short than there were in circulation. On the other hand, in the world of retail trading, traders participated in what appeared to be a coordinated price pump of GME, led by members of the subreddit r/WallStreetBets. The rally resulted in what is known as a short squeeze that forced many of Wall Street investors to liquidate their positions, forcing the stock even higher.
On Wednesday, traditional trading institutions began to take dramatic measures to curb the volatility. Robinhood restricted trading for GME, among with other stocks, while other brokerages stepped in with similar preventative measures. Simultaneously, the media and tech giants began to turn on the smaller investors.
While the debate over who was “right” or “wrong” in this situation continues, many in the DeFi space see the restrictions as validation of decentralized financial applications.
Michael Novogratz, the co-founder of crypto investment firm Galaxy Digital and a former Goldman Sachs partner, recently said that the GameStop short squeeze goes beyond it being a squeeze:
“This GME squeeze is deeper than a squeeze. its a large group of people saying they don’t want Citadel preying on their orders from RH, they don’t want IPO’s being allocated to insiders, they don’t like a system geared to the already rich.This is a giant endorsement of DEFI.”
He elaborated that the societal tension that has swelled over the past few years is a sign that there is a desire for a shift toward more decentralized networks and systems.
Qiao Wang, a DeFi-focused founder and investor, made a similar comment about how crypto and related technologies tie into the recent price action of GameStop’s stock. He specifically pointed to Synthetix, a synthetic asset platform that allows investors to obtain exposure to stocks without restrictions.
It’s worth noting that not everyone thinks DeFi is ready for mainstream adoption. A prominent crypto-asset researcher who goes by “Hasu” on Twitter commented that DeFi platforms are currently not as censorship-resistant as some paint them out to be. Hasu commented on the matter:
“Not a fan of seeing people shill Defi as a Robinhood substitute here. Same as Bitcoin wasn’t ready for Wikileaks in 2010, Defi is not ready for more mainstream adoption. Most projects are not yet censorship-resistant, I say that as a big Defi fan. Give them more time.”
Similarly, the current situation with soaring Ethereum transaction fees is extremely preventative for newer and smaller traders to participate in. It would be even worse if tens of thousands of stock traders were to suddenly migrate from traditional trading platforms to Ethereum-based ones.
Mark Cuban dabbles in DeFi
Billionaire investor Mark Cuban evidently spent some time in the world of DeFi this past week.
After hinting earlier this month that he held some assets in Aave, a decentralized lending solution, he confirmed this past week that he himself has been getting involved in DeFi and crypto. This past week he announced that he was selling NFTs, or tokens that represent unique goods like art pieces, on a platform called Rarible.
While NFTs aren’t necessarily DeFi-related, Rarible in particular integrates NFTs into DeFi. Furthermore, analysts noted that the address Cuban used to interact with Rarible indeed had money on Aave. He has approximately $125,000 worth of AAVE and around $1,000,000 worth of ETH. Another address connected to Cuban also held a bit of decentralized trading platform SushiSwap’s SUSHI token.
While he may not be a full-fledged crypto bull just yet, him using these platforms is a validation to some that the technology does have merit.
Also of note, of course, was Cuban’s Twitter thread today on the GME and Robinhood controversy versus DeFi. In other of the tweets he wrote:
“For RH Traders that own $GME that money, as best I can tell, is held in street name. Which means that 30% APR goes 100pct to @RobinhoodApp. Imagine if you pooled your crypto and the platform was getting 30% APY and didnt pay all but fees to you ? What would happen ?”
He went on to add, “This is one more way that Wall St takes advantage of the little guy,” echoing general sentiment across traditional and crypto markets this week.
Grayscale rumors abound
Grayscale Investments rose to prominence in 2020 as the main way institutional investors can obtain exposure to cryptocurrencies. It has largely focused on BTC, the largest, most robust and time-tested cryptocurrency, as well as the second-largest coin, ETH. However, recent filings indicate that the firm is looking to allow Wall Street players to invest in DeFi as well via soon-to-launch products.
As first spotted by DeFi investor Jason Choi of Spartan Capital, Grayscale recently filed documents for a Grayscale Aave Trust that would presumably hold AAVE. Others spotted filings for other potential Trusts including a Grayscale Uniswap Trust.
These Trusts, if launched, would represent the first time that Wall Street investors will be able to invest in a fund that has exposure to decentralized finance-related tokens.
One issue with Grayscale is that its Trust products carry a premium to the assets under management. This premium can be bypassed today through existing centralized exchanges, like OKCoin, which allow users to buy digital assets and take custody of them directly.
UNI shoots higher
A key theme in the DeFi market this past week is the strength in the price of decentralized exchange Uniswap’s UNI token.
According to OKCoin market data, the cryptocurrency is up over 90% in the past week, making it one of the top-performing crypto assets among the top 100. The cryptocurrency is now one of the top 20 largest digital assets by market capitalization in circulation.
UNI’s rally comes as the Uniswap platform has continued to see rising trading volumes, per Uniswap data.
It is believed that the expectations around Uniswap v3, an upgrade to the popular DeFi protocol, is driving the market higher. Uniswap v3 is expected to be a large level-up when it comes to the current iteration.
Reddit supports Ethereum scaling efforts
Reddit has long been a place where Bitcoin investors and others interested in BTC and crypto more generally have met to discuss a number of crypto-related subjects.
Reddit doubled down on its support for the crypto community this week when it inked a relationship with the Ethereum Foundation to work on scaling for the blockchain.
For context, Reddit has begun to dabble in its own cryptocurrency over the past year, distributing tokens called Community Points on an Ethereum testnet to users of certain subreddits. This hasn’t worked at scale though because the main Ethereum blockchain could not handle all the transactions required to support Reddit’s millions of users. Hence Reddit’s interest in the blockchain’s scaling efforts, which have long been a point of contention in the crypto space.
Reddit admins announced the partnership, saying that it is needed to accelerate its efforts to better monetize and create a system of incentives for users of Reddit:
“Our intention is to help accelerate the progress being made on scaling and develop the technology needed to launch large-scale applications like Community Points on Ethereum. The scaling technology developed through this partnership will be open-sourced and publicly available for anyone to use.”