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DeFi tokens plummet while TVL remains at an all-time high

Photo of: Dennis Ramos
by Dennis Ramos

DeFi space has been buzzing with activity ever since the DeFi summer took over. Protocols after protocols came into being, some hugely successful while others disappeared without a trace. But Asset prices in the DeFi space are now seeing a new low especially after experiencing such a huge high in the recent past. The DeFi Index Perpetual Futures Instrument on FTX that has a basket of DeFi assets has registered a new low of almost 50% from the high it experienced on September 1’st. 

Source: Trading view

The graph above shows that the time between August and September has seen a remarkable growth with new peaks to be observed. However the plummeting started to show after it reached a point in mid-September. Talking about tokens, in particular, some prominent names have fallen from their recent upswing. YFI and SERUM have taken a deep plunge of more than 65% from what they were priced on September 1’st. 

To understand this in detail, we can now safely say that when newer protocols were being introduced people were engaging in speculative investment into these new tokens and platforms. While for some this strategy worked, others vowed not to come back. The protocols soared in numbers so much so that Ethereum became heavily congested with its gas prices so high that many protocols decided to migrate to newer networks. Back in 2017 when the ICO bubble burst, the same trend was observed when people infused thousands of dollars in new projects. 

This year has been marked by genuinely great projects but it has also seen hordes of copy-cat projects, bug exploits, hacks which took advantage of the infusion of speculative, non-discriminating investing. Quite like the ICO boom, this pouring in of capital also helped drive legalized development of several new and novel ideas in terms of decentralized financial legos. Notwithstanding the crash of many DeFi tokens in the course, the total value locked in DeFi in USD still remained on the higher side and at an all-time high: 

Source: DeFi Pulse

A majority of the TVL is locked in conservative systems compared to those that have reached great hype and fallen down drastically after corrections. In short, those smart contracts that have undergone multiple audits, backed by the best names, have the best use-cases that have continued to attract a lot of capital. Uniswap is the leading DeFi application which has the maximum Total value locked with almost $3 billion in liquidity. The exchange also facilitates denominated trading volumes of hundreds of millions in USD every day making it one of the most successful projects this year. 

Fundamentally speaking the drop can be deemed healthy for broader digital space. As and when the market corrects itself, it will flush out all the projects that have questionable fundamentals. Consolidation is bound to happen around those projects which are rational and far-fetching in terms of growth. Many interesting projects have been discovered with capital infused by the community while many could be waiting for the light of the day to discover its worth.