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In less than a month Binance’s DeFi composite index loses half its value

Photo of: Janeth Diamond
by Janeth Diamond

The first index that was launched by Binance Futures is the DeFi composite index which tracks the market performance of a basket of decentralized finance protocol tokens on Binance. It is calculated based on the weighted averages of real-time prices of the DeFi tokens on Binance and is denominated in USDT. The composite price indices are different combinations of underlying instruments that are intended to measure the overall market performance over time. 

The index is made up of the following DeFi protocols: Band Protocol (BAND), Compound (COMP), Kava.io (KAVA), Kyber Network (KNC), Aave (LEND), Chainlink (LINK), Maker (MKR), Synthetic Network Token (SNX), Swipe (SXP), and 0x (ZRX).

But cryptos linked to DeFi protocols have started to lose their value on a consistent note over the last few weeks. The value loss has had a reverberating impact which is why even Binance’s DeFi composite index is down by over 50% since it was first launched. After hitting a high of $1,189 on a cryptocurrency exchange, the value of the index has plunged low to $527 which is half of what it was. 

Source: Binance

We see peaks of high performance and price, and though the same peak hasn’t been reached ever since that hour, it has plunged to a low. Now for the problem – The prices of a majority of the underlying tokens located in the index have been falling over the last weeks. Relative to this performance, the overall performance of Decentralized Finance is much intact and in fact raising ahead past the peak of $11 billion. 

DeFiPulse, one of the most reliable data research providers has shown that there are still more than $10 billion locked in these protocols because several protocols are still in the process of providing APYs created by the distribution of governance tokens. Liquidity miners are still sticking to such protocols because they want to gain as much as they can from them. 

A major reason, as to why some of the DeFi tokens have halved in their value could be that the liquidity miners have started taking in their profits. For Instance, Yearn. Finance’s YFI last month had a hit an all-time high of $43,000, but ever since it has dropped steeply and now is around $19,600 as per Cryptocompare data. The drop in the total value locked on Yearn.Finance witnessed the drop since September 23rd and ever since it has been on a spree to lose further value from $940 million to $730 million.

This was around the same time when Uniswap became popular and this multiplied several times especially after it launched its governance token UNI. The total value locked in the protocol started rising from $1.73 billion to more than $2.36 billion. The value of Uniswap is equivalent to the total value locked in DeFi over 2 months ago. With the UNI governance token came the exceptional liquidity increase on the decentralized exchange.