The excitement and furore around DeFi and the projects in the space that offered massive potential wealth seems to have been rather short lived. Certain tokens sprung up and gained impressively over the last few months but there seems to have been a change in direction.
Since about the middle of September, a downward trend has developed over most major protocols associated with DeFi,and this has become even more obvious in the dip in Binance’s Composite DeFi Index which has fallen by over 50% in just a month since its launch.
DeFi has become a space that looks to have a currently unsustainable growth path and this recent and drastic dip could spell the end to this excitement in the market. However, it could also be a dip as the true face of DeFi takes over and becomes more sustainable.
Leading names down
According to Binance, the index is calculated using weighted averages of a DeFi tokens basket and tracks the market performance. It includes lending platform Compound’s COMP, DeFi darling yearn.finance’s YFI, Band Protocol’s BAND and other popular DeFi tokens.
Initially, the index reached a peak value of $1,189 but has now fallen to its current price of $515—due to a decline in the prices of its underlying coins.
It also links back to popular, yet controversial projects such as Sushi Swap and UniSwap. Even YFI, which peaked above $43,600 in the past is now trading at roughly $18,000.
The Block’s analyst Larry Cermak noted that its future is currently unclear, partly because there are not enough people willing to buy YFI at such prices.
“I think that’s part of it but my hypothesis is that it is because yield is dropping and with the lack of market buyers, it’s not clear when it will return in strength,” Cermak tweeted, adding, “Therefore most metrics that people watch for yearn are down in recent weeks and morale of holders is low.”
Not good for the future
Analysts have taken a deeper look at the charts of the likes of YFI and there is not too much promise there either.
Analyst Johnny Mo also pointed out that YFI charts are not looking promising for the foreseeable future. He expects the price to fall towards “at least [the] $10,000 range,” adding that YFI’s horizontal support is only at the $6,000 level.
However, the notion of DeFi and its decentralised access with a low barrier to entry is positive for the eventual growth of the space, as was pointed out by Alex Svanevik, CEO of analytics platform Nansen.