Why DeFi is Fundamentally Strong Despite Correction in Ethereum, ERC-20 Tokens
Since the highs of August and September, top coins in the decentralized finance (DeFi) sphere have plunged dramatically. VirgoX market data indicates that coins such as Chainlink (LINK), Curve DAO Token (CRV), and Yearn.finance (YFI) have dropped in excess of 50% from their highs.
One analysis published on October 4th by crypto-asset trader “Ceteris Paribus” found that the average DeFi coin was down 65% from its summer highs.
Behind the scenes, though, innovation and development in the DeFi space continues to increase at a rapid clip. This should result in a recovery in the price of DeFi coins over time once fundamental trends begin to outweigh pure speculation.
On-Chain Trends Show DeFi Remains Fundamentally Strong
On-chain trends show that fundamentally speaking, DeFi is stronger than ever.
Data from DeFiPulse, a cryptocurrency data provider, indicates that the total value of tokens locked (TVL) in DeFi contracts is holding steady at $11 billion. At the start of the year, this metric was closer to $500 billion. Even at the peak of the summer rally, decentralized finance TVL sat closer to $9 billion.
The consistent growth in this crucial metric shows that there is an increasing amount of capital and an increasing number of users that want to leverage DeFi to generate returns.
Spencer Noon, head of DTC Capital, also highlighted a series of metrics indicating that fundamentally, DeFi is stronger than ever.
The on-chain analyst and investor noted that DeFi adoption is starting to go “parabolic.”
Amongst other data trends, more than 3% of all ETH currently is deposited in Uniswap, Uniswap daily volumes often beat Coinbase, decentralized loans have reached $2.3 billion in aggregate, and the number of DeFi users recently passed the milestone of 500,000 users.
Technological Development Continues
Crucial to the next phase of growth in the decentralized finance space is technological development. Users and capital will stagnate, after all, if innovation flatlines and key user experience concerns persist.
We’ve recently seen the launch of a number of projects that are set to take DeFi to the next level. These include Rari Capital, a DeFi yield aggregator or smart money manager that accounts for smart contract risks, and BarnBridge, which is attempting to securitize the DeFi space to iron out capital inefficiencies.
Stepping back, there has also been an influx of technological development around scaling solutions for blockchains such as Ethereum. Due to the influx of activity in the summer, Ethereum quickly became unusable as transaction fees rapidly increased and transaction times slowed down.
The Ethereum 2.0 upgrade, which will overhaul the Ethereum blockchain by implementing two technologies sharding and Proof of Stake, is set to begin rolling out in November or December. Also, a number of companies like Matter Labs and Optimism have been working on second-layer scaling solutions that will drive transaction costs and times lower.
Why DeFi is Fundamentally Strong – Institutional Inflows
Institutional players are starting to enter the DeFi space.
Crypto-asset analyst Qiao Wang said that from his contacts, he has seen an influx of Silicon Valley interest in the space. He thinks that this will create an influx of growth and innovation, which may culminate in a bubble in the years ahead:
“It seems that Silicon Valley finally discovered DeFi. Relatively to crypto natives, they are characteristically late. They were late with BTC, ETH, and this time DeFi. But if history is any indication, they’ll hype it up and create a huge bubble out of it in the coming years.”
We’re seeing the institutional influence with entrances into DeFi by firms like Mike Novogratz’s Galaxy Digital. Galaxy Digital is a crypto merchant bank founded by Novogratz, a former Goldman Sachs partner. Galaxy Digital invested in the crypto-focused fund ParaFi Capital.
Legendary venture investors like Naval Ravikant, a16z, and Sequoia are also taking note of the space.
VirgoX Supports DeFi and Stablecoin Development
VirgoX continues to support development in DeFi.
VirgoX have listed a series of the foremost coins in the space, including but not limited to Yearn.finance (YFI), Ampleforth (AMPL), DFI.Money (YFII), SushiSwap (SUSHI), and Compound (COMP).
VirgoX is also focusing on supporting the growth in stablecoins. At VirgoX, we see stablecoins as crucial to the growth of decentralized finance, as it gives institutional players the ability to hedge the strong volatility risk in crypto.
As an exchange, VirgoX focuses on facilitating stablecoin trades. VirgoX is the first trading platform to support an array of stablecoin-to-stablecoin trading pairs. These pairs are crucial for the development of the DeFi space as it enables users to switch between coins to maximize their yields in the space.
The importance of stablecoins stretches beyond DeFi, too.
They can be useful in e-commerce, along with settlements between global companies that may want to find payment rails faster than banks. Sending a stablecoin on Ethereum, for instance, costs under a dollar and under a minute for the transaction to process. Compared to banks and wire transfers, stablecoins are efficient mediums of payment.
With a shortage of U.S. dollars globally related to the COVID-19 pandemic, stablecoins have also seen an uptick in adoption.