The week started on a high level for the DeFi space – led by ETH, a number of cryptocurrencies have made impressive gains across the board. That is, until today: Today the markets see red all along the line. Nevertheless, some analysts believe that the bull run that began around the turn of the year is far from over.
Indeed, the price of ETH reached a new all-time high of around $ 1,475 yesterday morning. Although the price had cooled to around $ 1,320 at the time of going to press, the price of ETH is still up nearly 80 percent from $ 735 on Jan. 1. For comparison: The price of Bitcoin has increased by around 8% compared to the beginning of the year.
However, ETH gains – impressive as they may be – pale in comparison to some of the price hikes other popular altcoins have seen since the start of the year.
For example, Aave (AAVE) started the year at $ 57; At press time, Aave had hit $ 257 – an overall increase of 184%. Similarly, sushi swap (SUSHI) increased 163%; Uniswap (UNI) is up 167%; Maker (MKR) is up 135%. Synthetix (SNX) and Chainlink (LINK) have increased by around 100%.
Certain lesser-known projects have delivered even more explosive returns. For example, data from Messari shows that the BAO token (BAO) has increased 1033% since the start of the year. yAxis (YAX), Perpetual Protocol (PERP), Alpha Finance (ALPHA), DODO (DODO), Meta (MTA), curve (CRV), MCDex (MCB) and ZKS (ZKS) all show increases between 200% and 200% to 450% since the beginning of the year.
Overall, the Total Value Locked (TVL) in the DeFi ecosystem has demonstrably exploded since the beginning of the year. As of Jan. 1, DeFi’s TVL was $ 15.45 billion. Today that number has risen to $ 25.43 billion – an increase of nearly 65%.
Which DeFi tokens are worth buying?
Those numbers are almost deliciously good – which is why investors seem to be constantly drawn to DeFi, even though BTC has seen a decline in recent weeks. In addition, certain parts of the news media seem to have increasingly focused their coverage on the DeFi area. The number of articles detailing the profitability of the “top 5” DeFi tokens that may be of interest to investors has increased significantly.
For example, Forbes published an article on 5 “Blue Crypt” (a game with the phrase “Blue Chip”) DeFi tokens that should be bought. These included Chainlink (LINK), Uniswap (UNI), Aave (AAVE), Compound (COMP) and DAI (DAI).
Are blue chip DeFi assets made with the same corn as blue corn tortilla chips? pic.twitter.com/MPRiJvOwSI
– Hudson Jameson (@hudsonjameson) January 25, 2021
Each of these five projects, along with other DeFi projects with relatively large market capitalizations, is one of the largest and best-known projects in the DeFi area. It’s been around long enough to earn a pretty positive reputation in the cryptocurrency space.
In addition, each of them has received a lot of attention and attention, and as a result, each of them has made massive returns since its inception: for example, data from CoinMarketCap shows that Aave’s overall ROI is 48926.43%; Chainlinks is 14603.66%. For comparison: The ROI of Ether is 46870.17% and that of Bitcoin 23697.46%.
Selection of DeFi assets to be invested in
While DeFi as a whole is still in its infancy (and therefore likely an even riskier investment than Bitcoin, Ether, and other major cryptocurrencies), these projects may be a little less risky than some of the brand new DeFi assumes that the lowest token currently available Prices are available.
Investors looking to buy DeFi tokens must therefore consider the risk they want to expose themselves to before making any purchase decisions. This is an important guiding principle for any type of investment.
In addition to knowing your own risk tolerance, it’s also important that you know a few things about an asset before investing in it, including (but not limited to):
- What is the asset used for?
- Whether the asset complies with the relevant regulations;
- Who created the asset and who is leading the development of the asset?
- Whether or not reputable investors and VCs approved the investment;
- Which exchanges was the asset listed on and whether it required a review process in order to be listed on that exchange?
- What is the long-term usage history of the asset?
- & whether or not the native technology of the asset can withstand the massive use and attempt of hacks.
This last point can be particularly challenging due to a chronic lack of audits in the DeFi area. Robert Leshner, CEO of Compound, told CoinTelegraph, “The biggest challenge for new DeFi projects is code security and verification.”
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“Auditors are stretched thin, and most developers write Solidity for the first time,” he said. Indeed, there have been a number of examples of incidents where DeFi logs have lost money due to technical weaknesses being exploited by malicious actors.
Will Bitcoin’s “run-off” effect increase DeFi token prices?
Part of the risk of the DeFi area is the fact that the DeFi market is so volatile. While there are some key differences, a number of analysts drew parallels between DeFi and the ICO market in late 2017. The DeFi area has already gone through at least one major “pump” cycle, and it seems we are in the middle of that one more.
But are the price levels that DeFi tokens are currently reaching sustainable? And what is this massive pump causing in the DeFi markets anyway?
A number of analysts agree that the rise in DeFi token prices has something to do with the rise in Bitcoin price. However, the terms of the relationship between Bitcoin and the DeFi space are not entirely clear.
For example, some analysts believe that Bitcoin generally has some sort of “drainage effect” on altcoin markets. In other words, Bitcoin is making headlines and institutional investors, and as such, brings in large amounts of new capital. After the bitcoin hype subsides, investors are starting to convert some of their BTC profits into altcoins in hopes of increasing their chances of further profits.
Jeremy Musighi, Head of Growth at Balancer Labs, explained the phenomenon to CoinTelegraph: “I think there is a natural progression for newcomers to crypto: first they learn about bitcoin, then they find their way to Ethereum, then they find their way to DeFi, ”he said.
“From the point of view of market mechanics, we often see profits from the Bitcoin appreciation in crypto bull runs, which flow into other crypto assets. During this run we see this rotation of Bitcoin into Ethereum and DeFi tokens. “
Bitcoin is becoming an increasingly important part of the DeFi landscape
In fact, this phenomenon appears to have contributed to the recent spikes in ETH and other altcoin projects. After all, Bitcoin hit a new all-time high on Friday, January 8th. Since then, BTC has seen a pretty rocky but sustained decline.
And as BTC has continued to drop, token prices in DeFi markets have increased fairly steadily.
However, falling prices for Bitcoin do not necessarily mean rising prices for DeFi tokens. In fact, certain DeFi protocols benefit from a higher Bitcoin price and market cap as Bitcoin is used on their platforms.
For example, Scott Stuart, co-founder and chief product officer of blockchain developer Kava Labs told CoinTelegraph that a healthy Bitcoin price is a good sign for the DeFi space: “DeFi requires a healthy amount of collateral to be used in products be. ”he said.
“The more valuable BTC, the more collateral and thus the use in DeFi.” In other words, it’s a win-win situation. BTC is amplified by its use in DeFi protocols, and increased use of DeFi protocols increases the tokens associated with it.
However, the amount of Bitcoin currently used in the DeFi ecosystem may not be enough to have a significant impact on Bitcoin price. Currently, the amount of bitcoin used in the DeFi ecosystem (159,710 BTC) is just under 1% of the circulating bitcoin supply (18,610,887 BTC). At the time of going to press, that was about $ 5.1 billion. The total value of DeFi (TVL) was $ 25.09 billion.
As DeFi has grown, ether is increasingly viewed as a store of value
While the relationship between DeFi-based altcoins and Bitcoin may not be entirely clear, the relationship between DeFi platform tokens and the price of Ether (ETH) appears to be much clearer.
Indeed, this relationship is demonstrated in part by something quite problematic. As the DeFi ecosystem has continued to grow, the Ethereum network itself has struggled under its weight. This is due to Ethereum is The primary blockchain that many DeFi protocols work with – and that will likely hold that position for some time to come.
This is partly evidenced by the fact that Ethereum’s problems – which include high transaction fees and slow transaction speeds – are currently being addressed with the network’s upgrade to Eth2.0, which is said to support a higher number of transactions and offer lower fees. While the Eth2.0 “Beacon Chain” went into operation in December 2020, the network will not be fully started for several years.
However, due to the growth of the DeFi ecosystem in the Ethereum network, investors seem increasingly to see ETH as a value storage instrument, much like Bitcoin. In contrast to the value of Bitcoin as “digital gold” and “hedge against inflation”, however, the value of Ether is derived from the financial services ecosystem that has also been developed.
In fact, Coinbase’s 2020 annual review found that more and more institutional investors are looking at Ether as a store of value. In particular, Coinbase reported that “a growing number” of its institutional customers have taken positions in ether – the same customers who mostly bought Bitcoin in 2020.
None of the content in this article constitutes investment advice.