DeFi Bleeding: Fundamentals Don’t Matter But Particular Sections of The Market Are Still Seeing Growth

DeFi also continues to bleed against ETH, but active strategies and an active rotation into stablecoin farms do outperform ‘buy and hold’ Ether.

Cryptocurrencies continue to get sold-off.

And decentralized finance (DeFi) isn’t exempt either. The market cap of the entire DeFi sector has fallen just under $76 billion, down from about $144 billion peak in mid-May due to the prices of DeFi tokens crashing 20% to 75% in the last 30 days.

DeFi, much like all the other altcoins in the market, remains at the mercy of Bitcoin. While it may seem like initially that the crypto assets are decoupling, that is not the case, at least not yet.

“Typically, new and less well-known tokens don’t have institutional support from a liquidity perspective. When majors — Bitcoin and Ethereum — are down significantly like today, DeFi products like these will have more violent price actions,” said Wilfred Daye, chief executive officer of Enigma Securities.

One of the reasons could be that everyone doesn’t understand DeFi or its fundamentals just yet.

“Fundamentals don’t matter because not enough people understand it and is willing to put $ on it, on the other hand, momentum following has always worked,” noted trader CL of eGirl Capital.

Why is defi nuking? Well despite neat schedules comparing Price to Sales and Price to Earnings of protocols vs equities, its unclear how tokenholders have a claim to treasury assets / protocol fees generated.

Decoupling is still a meme it seems.

— BasedPotato (@BasedPotato4) June 19, 2021

DeFi tokens are not only falling in USD terms but also bleeding against ETH.

DeFi is actually worse off compared to Ether in terms of lower returns, higher volatility, longer drawdowns, and larger maximum drawdown.

“Of course, defi would be underperforming ETH – the defi/eth bear market has been in play since last year at some point in the future, I would expect select defi to strongly outperform ETH, but that might not be so soon,” noted Degen Spartan of eGirl Capital.

While DeFi’s “returns have been lackluster for idle buy and hold strategies,” data provider Glassnode found in its latest report that active strategies and an active rotation into stablecoin farms have outperformed buy and hold ETH.

“While returns in DeFi governance tokens have been underwhelming at times, access to yield on assets an investor would otherwise choose to hold regardless is incredibly powerful,” it said.

Still, some metrics are showing strength in the DeFi market. As we reported, total value locked (TVL) in DeFi blue-chips, Yearn, and Aave has already surpassed ATH despite the prices more than halved.

Lending activity in the market is also seeing growth as people look for lucrative yield farming opportunities in the absence of price action. Outstanding DAI is also at ATH of $5.36bn the same as Aave, which hit $6.27 bln high just this week.

The 10 yr US Treasury rose 8 bps today to 1.57%, which means the price fell -0.75 pts.

So roughly half of the full year’s expected return was wiped out in 1 day.

So yes, bond investors will eventually find #DeFi

(Hint, I had 4 conversations myself with debt funds today)

— Jeff Dorman, CFA (@jdorman81) June 16, 2021

Also, while much like on centralized exchanges (CEX), volume on decentralized exchanges (DEX) is falling off a cliff, just last month, total DEX volume hit a new record of over $173 billion, up 109.5% from the previous month and 67,460% from a year back.

“Halfway thru June, DEX volumes on pace for 3rd largest month ever (already > EVERY month in 2020), DEX’s are stealing market share from CeFi,” noted Jeff Dorman, CIO at digital asset management firm, Arca.

This is just short-term, and “a week or two of data doesn’t invalidate long-term trends in volumes, revenue and cash flows,” he added.