This week at DeFi was known for no noteworthy events. No one set new records for the fastest breakthrough for a new decade, and none of the famous immigrants cheated or drew attention to the avatar of DeFi Jesus.
You can only feel that something has changed now. Before every weekend, we were discovering some new strange foods, or someone would initiate a vampire attack using a different protocol with a cleverly disguised Ponzi scheme.
Not to mention that nothing happened this week, but the range is different this time.
What really caught my eye is the low prices of many of the DeFi tokens, which is well reflected in the various recently launched DeFi indicators. Dear people, in the time of fertile cultivation, they suffered the most damage.
The complex broke its August low from $ 127 to $ 100. YFI Yearn Finance is 66% below all time high. The SushiSwap icon is entering a death spiral: after peaking and losing nearly 90% of its value in September, it has lost another 50% since the previous newsletter. The Uniswap symbol gave in completely and broke the psychological barrier of $ 3 that was originally used to draw the analogy of the “$ 1,200 DeFi stimulus test”.
Do the fundamentals support the current level?
A glimmer of hope is that the total value booked for DeFi remains high at $ 10 billion, which some analysts say is a sign of strong fundamentals.
I respectfully disagree with this premise. I wrote in detail that TVL does not represent anything with a crop. The total closed cost for Uniswap, Compound, SushiSwap, Curve, etc. is just so high just because new tokens are constantly being printed to support it. Protocols like Maker or Aave also get second-order windfall profits from the demand for DAI or higher token prices.
The problem of double counting became painfully clear. For example, WBTC has its own $ 1 billion DeFi Pulse rankings position. Except that more than 83% of the offer comes from groups of other projects, especially Uniswap, Maker, and Curve.
The main source for double counting is DAI – the security used to create it is set as Maker TVL, then DAI counts when it enters Uniswap or Compound. With DAI, it can be said that security and stablecoins serve different purposes, so it makes sense to consider both cases. But WBTC is just a token that does nothing in and of itself – it’s like an Ether full-width account as TVL at DeFi.
Anyway, I don’t think society has yet realized what happened. With Ethereum overloaded, we’ve seen DeFi come to the surface when it comes to users and activity. It has been a long journey, mixed with uncertainties and apparent successes (for example, I’m in awe of Uniswap reaching a central level of liquidity and coin size).
But now, as was the case with cryptocurrency in 2018, it’s about expansion and growth to ensure the next wave of projects and success. I’ve heard explanations that the people driving it believed that it was pushing DeFi into the mainstream and that the market would grow into hundreds of billions of dollars.
Instead, all we got was a jam on the string measurements and the point turned into a dump for periodic addictions and bad reporting. Unfortunately, when the markets are rallying strongly, they also become very unhappy when they realize that the fundamentals behind the rally were missing.
So the point is, I don’t think the market has really stopped dumping. I don’t have a crystal ball, and I might be wrong, but I’ve been in cryptocurrency for long enough to know that we haven’t hit the bottom before everyone starts talking just about the technology and challenges ahead, while I criticize the extreme beef market. (In general, everyone is like me.)
In the meantime, I think it is worth considering the technological developments that could support the next rally.
DeFi compatibility is gaining traction
There are two main ways to scale DeFi in the short term: Ethereum further stepping solutions and connecting with other blockchains.
There is competition on all fronts. In the second level you have the main competitors Optimistic Rollups and Zk-Rollups.