Green Shots Emerge in DeFi Following the Painful Unwinding of the Crowded Space
During the recent correction, the DeFi market pulled back hard, so much so that the seven days percentage returns are still in the negative by 20% to 40%.
Except for a handful of top DeFi tokens, all of them plunged 70% to 95%.
But the market seems to be gaining momentum yet again. While in the past hour, DeFi tokens are slowly turning red, in the last 24 hours, significant gains have been made.
Notable mentions include Cream (81%), Swerve (81%), Hydro Protocol (44.3%), bZx Protocol (30%), YFI (17%), Loopring (12%), Aave (10%), Bancor (6.3%), Chainlink (5.6%), Serum (5%), Synthetix (3.8%), and CRV (2.5%).
Total Value Locked (TVL) in DeFi has also climbed to $7.95 billion after falling to the $6.78 billion low today from the high of $9.5 billion on Sept. 2nd.
Uniswap, with $1.47 billion in TVL, is now dominating the DeFi space, a position juggling between Aave, Curve Finance, and the long-standing leader Maker.
Another Vicious to Resume
The market correction was actually the domino effect of DeFi positions unwinding after the head chef of SushiSwap decided to call it a day by pulling a Litecoin’s Charlie Lee, or you could say Ethereum’s Vitalik Buterin.
“The uber-crowded trade in US equities is nothing compared to the crowded nature of DeFi space,” said Denis Vinokourov of London-based brokerage service Bequant.
When DeFi tokens started going down, “the spillover effects turned out to be significant,” which makes sense given that almost $10 billion worth of capital was splashing in the ecosystem. Vinokourov said,
“Going back to the recent price action and as demonstrated in the past, crowded trade unwinds are extremely painful and broad-based but eventually green shots emerge.”
And this is what we are seeing in the market currently. Also, with a considerable reduction in Ethereum gas levels and potential interest from China, another vicious circle will soon resume.
An Opportunity for Competitors
During the DeFi craze, network fees being too darn high also came back in the light. Ethereum miners made a killing from transaction fees, pocketing a total of $113 million in profit in August, up over 3,660% from the meager $3 million earned just four months back.
This means the Ethereum network has all to gain from this DeFi craze and to lose as well.
So, what the second-largest network needs, according to Vitalik Buterin, is nothing but “drastic increase in scalability” – which involves only sharding and rollups, and that has been coming for years.
This makes it a big opportunity for Ethereum competitors such as Cardano, Tezos, and EOS. But while Cardano has just released its mainnet, EOS is not seeing much traction, recording $1.74 billion volume compared to Ethereum’s $5.64 billion.
But according to Brendan Blumer, CEO of Block.one, the company behind EOS, “EOS will unleash DeFi… EOS has the performance, liquidity, and developer community to support DeFi applications that aren’t possible anywhere else.”
Polkadot is another one that jumped the ranks thanks to a denomination – crypto’s version of the stock split.
In the meantime, market participants acknowledged Ethereum’s layer2 solutions like the OMG network and Loopring, resulting in these tokens outperforming.
But Vinokourov says, Ether contenders “command significant financial firepower and a competing platform to rival Ethereum’s DeFi is likely a matter of time.”