The decentralized finance (DeFi) rage made many people in the crypto community very rich. With DeFi tokens surging by as much as 10,000% and more, they have become the best-performing assets of 2020, so far.
2020 saw everything from stocks, bonds, and commodities flying, hitting new all-time highs (ATH). But nothing compares to the success of DeFi.
In the macro, the YTD returns have been: gold 25% and S&P 500 2.62%.
In the crypto market, Bitcoin recorded 45.7% returns YTD. The center of the DeFi world, Ether, which according to Bloomberg strategist Mike McGlone, “appears to be maintaining its platform leadership status” meanwhile rallied 160%.
Now, in the DeFi market, the top year-to-date performers include Cream (+98,900%), Aave (+2,617%), YFI (+2,144%), Loopring (+953%), and Melon Protocol (+877%).
Crypto assets performed well during the Covid-19 crisis thanks to Bitcoin becoming a “refuge” like gold and offering a store of value amidst the concerns of fiat devaluation, weakening dollar, and inflation propelled by huge stimulus injections to counter the pandemic.
“A purely ethereal instrument performs well when the real economy is on pause,” said Marc Fleury, CEO of crypto asset management and fintech firm Two Prime.
As for DeFi solutions, they basically port financial functions like lending, borrowing, trading, earnings, and insuring on blockchains.
DeFi also led to a surge in interest in Ethereum contracts, with 5.2 million ETH now locked in the sector, as per DeFi Pulse.
“Retail cryptocurrency users have increasingly turned to derivatives to maximize their returns,” said Aziz Zainuddin, chief product officer of Fasset.
Time for a Break?
However, recently the growth of DeFi is slowing down. On Sept. 18, the DeFi collateral levels reached over $13.2 billion from less than $700 million at the start of the year.
This week, the losses recorded by DeFi tokens have the TVL of DeFi declining to $6.3 billion, currently around $8 billion.
While the deposits are struggling to get back up, the price of the tokens has been taking a hard beating for the past few days.
In the past seven days, DeFi projects have lost a considerable amount of their value, including Swerve (65%), Rune (59%), Balancer (32%), UMA (30%), YFI (30%), Bancor (25%), and Curve (20%) to name a few.
“Been expecting a DeFi mini-winter since two weeks ago, but the kind of obnoxious shit that happened last few days makes think we are headed for a much longer winter. Could easily be invalidated by price action but need to be mentally prepared whether you’re an investor or founder,” said entrepreneur and quant trader, Qiao Wang.
While the past week, the largest DEX by volume Uniswap launched its much anticipated token UNI, this week, a group of large accounts were caught dumping their coin.
This week, we also saw Curve fork Swerve’s TVL crashing from over a billion-dollar last week to a mere $44 million today.
But while the Defi bull market might take a pause, the builders aren’t stopping…