Hot DeFi Summer Starting? Investors Might Get Left on the Sidelines as the Market Breaks Correlation

Meanwhile, a group of crypto lobbyists, the so-called “Global DeFi Coalition,” has penned an open letter to the FATF for “well-balanced” approaches to regulating the DeFi.


Decentralized finance (DeFi) seems to be back in full force.

After it started bouncing last week, today, the market cap of the DeFi sector has risen to nearly $78 billion, now making its way towards the May peak of just under $144 billion.

ALPHA (57%), SNX (34%), AAVE (25%), SUSHI (22%), COMP (20%), and RUNE (20%) are leading the market gains in the past 24 hours.

DeFi is breaking out speculatively for the first time in months.

In the past 7-days, the best performers include PERP (68%), SNX (63%), ALPHA (60%), COMP (60%), RGT (59%), and AAVE (37%).

With this move, we have begun to see reduced correlation across assets and sectors in the crypto market over the past couple of weeks.

DeFi is leading the charge this time, with Bitcoin enjoying some boring sideways price action with Ethereum slowly trending up while stablecoins market supply is hitting new highs every day, currently past $110 billion.

“Compound kicked off DeFi summer 2020 with liquidity mining. Will it kick off DeFi summer 2021 again with Compound Treasury for businesses and institutions? Judging from the interest among tradfi funds to access yields offered by DeFi protocols, I say there is a good chance….” said SpartanBlack, partner at crypto fund The Spartan Group.

While Aave Pro for institutions is coming this month, last week, popular DeFi lending protocol Compound Finance, which is backed by cryptocurrency exchange Coinbase, announced Compound Treasury,

“designed for businesses and financial institutions to access the benefits of the Compound protocol offering a fixed 4% APR on US dollars, with daily liquidity but none of the complexity of crypto.”

Multiple DeFi coins have more than doubled already from their bottom during the latest sell-off.

“In the past, crypto bottoms often end with cascading liquidations for shorts in large moves up, leaving many in the sidelines,” noted Jason Choi, partner at crypto fund The Spartan Group.

He further noted that with “retail darling” MATIC as a benchmark, it seems most short-term speculators in major DeFi names have capitulated, with about 90% of holders of coins like COMP, AAVE, and ALPHA having acquired their tokens before the market sell-off in May.

Amidst this, the so-called “Global DeFi coalition,” a group of crypto lobbyists across the UK, Europe, US, and Asia, have sent an open letter to the Financial Action Task Force (FATF) and are calling for “well-balanced” approaches to regulating the DeFi.

The letter addresses FATF’s executive secretary David Lewis and has laid out six guiding principles for governing DeFi organizations.

“It is crucial that the rapid growth of DeFi is well understood by authorities to adequately align their regulatory approaches to this space,” reads the letter, which warns of a premature crackdown that would risk “stifling innovation and preventing new ideas from emerging.”

As such, calling for an open dialogue between regulators and the industry through consultations and working groups.

“The letter aims to help authorities avoid potential pitfalls by providing regulatory recommendations by the industry,” said the group comprising of more than 350 companies.

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