After significantly outperforming Bitcoin (BTC) and Ether (ETH) in August, Decentralized Funding (DeFi) tokens have now incurred numerous reported losses of up to 50%.
Two currencies are currently attracting the most attention: Yearn.finance (YFI) and Uniswap (UNI), both of which have fallen 46% and 48% since their monthly peak.
Three catalysts seemed to be behind the correction: a drop in Ether, profits from the previous BTC rally, and strong sales of DeFi tokens.
Most DeFi codes have been modified from 15% to 25%.
The vast majority of DeFi tokens are down 15-25% in a single day. Even cryptocurrencies that are not directly DeFi tokens, such as Chainlink (LINK), have depreciated by 15%.
While the withdrawal of the DeFi tokens coincides with a drop in the price of Ether, many analysts were expecting a correction in earnings.
For example, Yearn.finance has grown to be a dominant player in the DeFi market in less than three months. Meanwhile, the YFI price on Binance surged 1,200% to a peak of $ 43,966.
Uniswap’s original control code, UNI, saw the same explosive growth in a much shorter period.
As reported by Cointelegraph, Uniswap sent 400 UNI tokens to every user who used the decentralized Uniswap exchange prior to September 1. At a peak of $ 8.80, 400 UNI coins were worth $ 3,520.
In a short time, the price of UNI rose sharply due to several large IPOs. Within the first five hours after Coinbase Pro launched, Binance and FTX UNI listed. As a result, the token price jumped from $ 0.30 to $ 8.80 in less than five days.
Given the massive increase in DeFi tokens in the USDT and BTC pairs, the profit adjustment was expected, but the severity of this adjustment surprised many traders.
Ether struggles to maintain speed
Historically, Ether has been a pioneer among alternative digital currencies, including DeFi tokens. In some bullish cycles, Ether has also affected Bitcoin’s price. For example, from March to August, when the Bitcoin price recovered from the famous Black Thursday crash, the Ether price significantly exceeded the Bitcoin price.
However, since September 1, Ether has struggled to keep up with Bitcoin’s performance. While BTC rose from $ 10,300 to $ 11,100, Ether consistently stayed below $ 400.
Over the past 20 days, the price of Ether has decreased by about 28%, and during the same period, BTC recorded a decline of 12% against the US dollar.
The short-term weakness in Ether is likely driven by increased selling pressure for DeFi tokens, and subsequently a roughly 50% correction by the likes of UNI and YFI in recent days.
Bitcoin earning begins with the DeFi correction
Sentiment surrounding Bitcoin’s September 9-19 rally remains mixed. Interestingly, only BTC saw strong growth, while Ether, altcoins and most of DeFi tokens remained the same. This is somewhat unusual, as usual when Bitcoin is limited in range, altcoins rise, and when Bitcoin rises moderately, the altcoins may be lying, but they still tend to track the bullish price movement of BTC.
This short-term reversal correlation between BTC and altcoins indicates that BTC saw profits rise as investors switched profits from DeFi tokens into BTC.