We warned you. DeFi was a very risky bubble to get involved with. Now we are seeing how some of the most prominent projects in the field come crashing down. DeFi chickens are coming home to roost. Hopefully, you are either on the right side of the market or out of it completely.
A Look at Some Notorious DeFi Projects
To show you how DeFi projects are falling from grace, here is the data from 4 Notorious DeFi projects, Ethereum, and Bitcoin for you to compare their performance:
Let us begin with the darling of DeFi: YFI or yearn.finance. This asset rose through the ranks like a rocket on its way to the moon. There was a lot of hype around it thanks to its “scarcity” – only 30,000 tokens available – and the business model behind it.
YFI holders earn from fees and “vaults” that hold “money” from YFI’s involvement in yield farming.
But just as the graph shows, the price of this token is declining quickly. Following the logic of what this token does, you might suspect that the whole DeFi space is tumbling. After all, if YFI would be yielding good returns from all the fees and all those vaults, why would people dump it?
Balance this Balancer!
Well, YFI could be the canary in the coal mine. This sputtering rocket is losing altitude just like other DeFi assets are. Take a look at Balancer for example. This token belongs to a decentralized exchange. It is a governance token used to whitelist projects that engage in “liquidity mining.”
If the term liquidity mining seems foreign to you, you are not alone. The first time we saw it we could sense that this was, yet another term brewed in sleek Wall Street talk.
It turns out that liquidity mining is basically another term for yield farming. It consists of committing a basket of tokens to pay out rewards for those who stake some other coin to provide liquidity to a pool.
In any case, Balancer is way off its peak. It is worth about 50% less than what it was worth when it reached its all-time high on August 30th, just a little over a month ago.
At least Balancer and YFI are not as egregious as our next example. If YFI was the darling of the DeFi craze, then SushiSwap must be the villain.
As a fork of Uniswap, it is supposed to be – yes you guessed it – an automated market maker. That by the way is another euphemism for something that has to do with endowing the market with “liquidity.” Isn’t it ironic that all these givers of liquidity seem to tank once people start selling them?
If you are thinking that this graph shows one of the main characteristics of an illiquid asset, you are definitely not alone. Sell about $20 million USD worth of Sushi in less than 24 hours and watch how buyers get so spooked they take all the liquidity away in a blink of an eye.
We Said Uniswap Prices Will Not Recover!
So, if you are Uniswap and you just saw what the rotten Sushi chef just did with a copy of your code, then you must follow. After all, you got to give the market the liquidity it craves. Just launch your own token already and make a fortune on that automated market maker allure that seems to escape us, mortals.
Forget the fundamentals. This is all about cooking up cool terms to spin blatantly useless pieces of data that only fools buy, and only greater fools buy from the original fools.
At least Uniswap – UNI – was so egregious that the bubble popped fast. UNI peaked at around $7 USD per unit and within 24 hours it started to fall off a cliff. We told you 11 days ago that Uniswap prices would not recover.
Well, UNI is worth about half what it was worth at its all-time high as DeFi crumbles. Don’t hold your breath, it will not recover.
Are you on the Right Side of DeFi Now?
It is important to be fair to all of these projects. After all, most cryptocurrencies are still reeling from the December 2017 crash. Bitcoin is at about 53% of its all-time high. Ether – the cryptocurrency that underpins the Ethereum network – is at just 24% of its all-time high of $1,432 USD.
But there is a significant difference between DeFi projects and cryptocurrencies that have a clear goal and work as advertised, like BTC. Bitcoin is widely used as a store of value, as an investment, and as a currency. It is a functional alternative to fiat.
DeFi products are nothing like Bitcoin, or even Ether for that matter. Every product that the DeFi sphere has come up with until now, is a vehicle for speculation and not a tool that can be used to generate value.
Bitcoin vs Ethereum in the DeFi Era
There are still new DeFi projects hitting the market every day. Many of them are reward tokens from people who take a derivative of a derivative and stake it for a yield. When you peel every layer off DeFi, you will find that Ethereum is at the very core.
Most of these tokens are ERC20s, just like the ICOs and STOs before them. Ethereum set out to become a distributed supercomputer. It became an enabler of weird experiments that devolve into useless projects, fueling bubbles.
Unlike Ethereum, Bitcoin achieved its stated goals, which is why it always was the most dominant cryptocurrency. Its reliability is undeniable and as it matures, the risk of engaging in BTC denominated transactions declines.
Don’t Give your Hard-Earned Money Away!
We hope that by now you have learned the lesson. Moreover, we wish that people who are on the fence and are still not convinced about Bitcoin, will not conflate it with all those DeFi tokens.
In the meantime, make sure that you don’t get stuck holding all the bags from the summer of yield farming. The harvest is over.
DeFi chickens are coming home to roost. Just look at the data above and see the trends: DeFi’s most notorious projects are crashing in lockstep. Winter is coming!