Don't look now, the broader DeFi ecosystem is red hot and continues to outperform bitcoin and the broader cryptoasset market since finding a bottom not even a month ago. As a matter of fact, when using the DEFIPERP contract as a proxy for the DeFi ecosystem, one will see that DeFi has posted an incredible +67% return since November 1st, well above BTC's +42% over the same period of time. While the rise in DeFi coincides with a near +$3B jump in total value locked (TVL) per data provided by DeFiPulse.com, DeFi's precipitous rally to an all-time high in September, blow-off top, bottom in early-November, and subsequent resurgence is almost identical to 4Q2017 - 2019 BTC price action. Such would seem to suggest that, like BTC, DeFi has entered into a new bullish market cycle and is primed to push higher as innovation presses on and interest in crypto builds.
Irrespective of the surge in TVL, one should note that the metric is arguably "too simple" and perhaps not entirely reflective of "market interest." This is partially due to the fact that DeFi participants can deposit one asset, borrow another asset, trade the borrowed asset for the deposited asset, and subsequently re-deposit. This "yield farming" strategy can increase TVL without attracting incremental, newly deployed capital/assets. Furthermore, in our latest 2H2020 Crypto Sentiment Survey, we found that 93% and 76% of respondents indicated that they had not borrowed from or lent to a DeFi liquidity pool, respectively, and their DEX usage was virtually nil.
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Irrespective of the surge in TVL, one should note that the metric is arguably "too simple" and perhaps not entirely reflective of "market interest." This is partially due to the fact that DeFi participants can deposit one asset, borrow another asset, trade the borrowed asset for the deposited asset, and subsequently re-deposit. This "yield farming" strategy can increase TVL without attracting incremental, newly deployed capital/assets. Furthermore, in our latest 2H2020 Crypto Sentiment Survey, we found that 93% and 76% of respondents indicated that they had not borrowed from or lent to a DeFi liquidity pool, respectively, and their DEX usage was virtually nil.
To stay up-to-date with the latest market developments,
be sure to subscribe to Kraken Intelligence at https://kraken.com/subscribe/intelligence