Bitcoin may be holding its ground but nearly all tokens related to decentralized finance (DeFi) are having a hard time at the moment leading some industry analysts to believe that the bubble has burst.
Since its all-time high last month, total value locked across all DeFi platforms has declined by almost 10% according to DeFi Pulse. Crypto markets are definitely cooling off from this summer’s action, but DeFi seems to be freezing over as token prices plummet.
For the first week in several months, there have been no newly hyped DeFi food farms, no smart contract breeches, no influencer or exchange shills, and no new token pumps. Some of those previously pumped DeFi tokens are down over 90% from their all-time highs.
Is DeFi in Decline?
Industry expert and Nuggets News founder, Alex Saunders, has recently expressed the importance of taking profits when trading adding that, ‘DeFi is a bubble.‘
On Sept 2nd I shared the following:
"In case I haven't been clear. TAKE PROFITS. I most certainly have been. #DeFi is a bubble. There are now multiple protocols that have crossed the chasm from yield farming to ponzi economics"$ETH hit $480 top that day. Were you greedy?
— Alex Saunders
(@AlexSaundersAU) October 8, 2020
From a trader’s point of view, short-term swings and profits are all that matters. Those that are holding on to DeFi tokens for the long-term are likely now to be hurting.
SUSHI, for example, has dumped 94% since its all-time high and the price chart resembles that of most altcoins between 2017 and 2018. Tokens from Curve, Swerve, and bZx are also all massively down from their peaks, while the Uniswap token has dropped over 60%.
Speaking at the LA Blockchain Summit, FTX CEO and SushiSwap savior, Sam Bankman-Fried questioned DEX volumes. He commented that as soon as the oversized incentives like liquidity mining slip away, so will the volume.
It does appear that DeFi has been driven by hordes of farmers seeking a quick profit rather than investors and HODLers seeking long term growth. With that in mind, the bubble narrative becomes more applicable.
The Future of Decentralized Finance
This year has clearly shown that there is a huge demand for DeFi, well beyond yield farming and chasing a quick buck. The world’s traditional financial system is on the verge of collapse with nations scrambling to debase their currencies in order to control the mountains of debt they have created.
Becoming your own bank is an alluring concept and DeFi has only just taken the first steps of what could be a very long journey. ETH 2.0 will ultimately aim to revolutionize the industry that has gained so much traction in such a short space of time.
Newer regulations will likely come into play to metaphorically sort the wheat from the chaff and eliminate the negative aspects of DeFi such as the clones, rug pulls, arbitrage bots, flawed smart contracts, and scam projects.