DeFi ecosystem has come a long way over the past few months. From a Total Value Locked (TVL) figure of $539.8 million right after the market crash in March, it has recovered extraordinarily well. At the time of writing, the same figures had risen to as high as $4.58 billion.
Leaving ETH behind
Interestingly, while the DeFi sector surged over the last few months, Ether’s valuation didn’t (until quite recently). This may have stumped many in the community, but it wasn’t unexpected; while Ethereum remains the base layer for DeFi, Ether’s primary functionality right now is to act just as a medium to pay gas prices.
In fact, even as a form of collateral on DeFi, ETH is being slowly squeezed out by the emergence of native DeFi tokens (Synthetix’s SNX) and stablecoins (USDC, DAI).
Yield Farming and some useful context
Anyways, how then can one explain DeFi doing so well? Well, the short answer is demand, with the recent surge in the same precipitated by the popularity of yield farming following the launch of Compound and yEarn Finance’s own Governance tokens.
However, characterizing the sector’s growth as a product of Compound and YFI’s performance may be an understatement because it implies that if and when these go bust, so will the sector, and DeFi will once again significantly dependent on Ether’s valuation. Such characterization is evident when researchers compare the sector’s market cap to some of the market’s top crypto-assets and publicly traded layer 1s outside of Bitcoin and Ethereum.
Now, I must clarify that there is nothing inaccurate about these observations. However, they are presented without context and fail to look into what’s driving the growth of a sector that has seen its TVL YTD grow by a staggering 600%.
There are a few key structural factors at play here, and some of these were recently highlighted by Arca’s VP of Portfolio Management, Hassan Bassiri. According to Bassiri, two factors can be credited for DeFi’s performance – a) Real (non-inflationary) yield in the form of exogenous cash flows and, b) Community Involvement/Governance.
Compound v. Aave – Why token accretion models matter
On the first point, Bassiri argued that recent DeFi protocols have struck upon a monetary model that creates actual value and real yield for token holders via these exogenous cash flows. Here, it is important to highlight the examples he used – Compound and Aave.
Under Aave’s model, participants can reinvest or stake the returns they get from selling USDC/ETH/BAL “to effectively own a bigger part of the network (thereby entitling them to more future flows).” That is all well and good, but most importantly, this model, by doing so, fuels buying pressure on the token as more and more tokens are staked, a development that pushes the Total Value Locked figures on the network even higher.
On the contrary, that is not the case with the Compound model, with Arca’s VP arguing that liquidity miners instead recycle assets to mine COMP and then immediately sell them to offset their interest expense. Simply put, since yield can be generated on Compound by selling COMP, selling pressure is inevitable.
According to Bassiri, the exogenous cash flows seen in models such as Aave are crucial to long-term token accretion in the DeFi ecosystem, not only because they allay selling pressure concerns, but also because they bootstrap “positive, reflexive behavior.”
In fact, token accretion models with such exogenous cash flows can also be compared to centralized exchanges and their own native tokens. Whether it is BNB or FTT, there is no real value accretion when exchanges like Binance and FTT offer buybacks and make burn announcements, with Arca’s VP going on to say that such gestures are merely “symbolic” since “no actual cash is received.”
Community is everything
The second point is equally, if not more, important than the first one in determining the recent success of the DeFi sector. Part of the reason why Community and Governance are so important is that they reinforce decentralization, one of the sacred tenets of the space. For those who were worried about the cryptocurrency industry getting too centralized, the emergence of DeFi has been heaven-sent.
Look no further than how Synethtix is decommissioning its Foundation to give up control to three DAOs – protocolDAO, grantsDAO, and synthetixDAO. In fact, a statement from Synthetix had read,
“….while we have been governed through rough consensus for some time now, this shift puts significantly more power directly into the hands of token holders.”
More power directly into the hands of token holders. Here, the decisions taken by token holders and the community are tied to the future of the protocol. Not only is this perfect for decentralization, but it also ensures active engagement among community members. Governance, it turns out, does matter.
To conclude, it’s hard to really say how far the DeFi sector will go. On the face of it, despite it being dwarfed by the larger cryptocurrency market, the sector does retain strong fundamentals. In fact, some have argued that the DeFi market may just be stuck in a positive feedback loop. That may be the case, but since this is the cryptocurrency space we are talking about, one never knows.
UBS Gold Price Prediction Buoys Mid-Term Bitcoin Bull Case
UBS, a top-two investment bank in Switzerland after Credit Suisse, has a bullish outlook on gold. In the medium term, the improving sentiment around the precious metal could buoy the bull case of Bitcoin (BTC).
Many high-net-worth investors within the cryptocurrency space describe Bitcoin as gold 2.0. Billionaire investors the Winklevoss twins have consistently said they believe BTC is a better store of value than gold.
The monthly chart of Bitcoin dating back to 2015. Source: XBTUSD on TradingView.com
According to the data from Skew, the correlation between BTC and gold has also increased significantly since April.
Why is UBS So Bullish on Gold and Could Sentiment Spill Over to Bitcoin?
UBS head of Asean global markets Yeoh Choo Guan said the bank expects gold to stay between $1,850 to $2,100 in 2021.
Gold has increased by 29% year-to-date, and a prediction of a 7.5% rally for an asset like gold is a bullish projection. Guan said:
“We are very bullish on gold. We think that the prices will go higher and what is interesting is we think it will stay higher for longer than expected.”
Atop its technical momentum, Guan noted that gold is becoming an “attractive portfolio diversifier.” It has historically acted as a robust safe-haven asset, but its increasing price in recent months has made it more compelling.
The risk of inflation in the medium term emerging from the Federal Reserve’s average inflation policy could also fuel the uptrend of gold.
If gold continues to see strengthened momentum, it could potentially spill over to Bitcoin.
Data from Skew shows that the realized correlation between BTC and gold is at a multi-year high. The one-month correlation reached 74%, a level it has not seen for years.
The correlation between Bitcoin and gold. Source: Skew.com
The bulk purchase of Bitcoin by MicroStrategy and the continuously increasing assets under management (AUM) of Grayscale indicate more institutions consider BTC as a store of value.
The Longer-Term Bull Case For BTC
Over the long term, long-time Bitcoin investors, like Tyler Winklevoss, foresees BTC eventually reaching $500,000.
In a paper entitled “The Case for $500K Bitcoin,” Winklevoss wrote:
“Bitcoin has already made significant ground on gold — going from whitepaper to over $200 billion in market capitalization in under a decade. Today, the market capitalization of above-ground gold is conservatively $9 trillion. If we are right about using a gold framework to value bitcoin, and bitcoin continues on this path, then the bull case scenario for bitcoin is that it is undervalued by a multiple of 45.”
The medium-term bullish predictions for BTC revolve around the post-halving cycle and the bullish trend of gold. The long-term bull cases for BTC are based on the expectations that BTC could reach parity with gold.
Currently, the market capitalization of Bitcoin hovers at around $202 billion, which is less than 2.25% of gold’s valuation at $9 trillion.
Uniswap (UNI) price jumps 135% to $6.00 highs
UNI/USD price has touched highs of $6.00 as total value locked jumps to $1.40 billion.
UNI/USD has touched highs of $6.08 on Coinbase, despite fears that airdropping over $1,500 worth of UNI tokens to users would see users looking to cash in on the goodies dump prices. Instead, investors are now eyeing higher gains, with analysts forecasting Uniswap’s governance token could be the driving force behind a new DeFi craze.
If dump happens, support lies around $4.20-$4.50 and crucially above $3.00.
Looking at the charts, UNI/USD is trending overbought with the RSI still rising to suggest a correction is likely. The MACD is also fully extended, to suggest holding prices above $5.00 could help bulls hold the advantage.
However, if a downward materializes, the critical support zones will be $4.20-$4.50 and below that, $3.00 that forms the entry point on the upswing to $6.00. Many holders are likely not to sell beyond this level.
Uniswap in top 25 by market cap
On September 17th, Uniswap announced it would airdrop 400 UNI tokens for every address that had called the network by September 1st. Immediately, more than 29.9k wallets claimed the new tokens.
At the time, UNI/USD was trading around $3.00. In the past 12 hours, UNI/USD has surged with a series of higher highs and higher lows as more Uniswap users continue to claim their free tokens. Per data on Etherscan, 77,451 addresses have claimed their 400 tokens with total transactions reaching over 336,500 as of writing.
Uniswap is now ranked as the 25th largest cryptocurrency in the market, with a market capitalization of $915 million and over $2.9 billion in intraday trading volume. The token is also listed on major cryptocurrency exchanges, including Coinbase, Binance, Huobi Global, FTX, and WazirX. There are also more than 60 trading pairs.
According to data on CoinMarketCap, UNI/USD changed 215% in the first 24 hours after its launch. The token is trading more than 135% up on the day, jumping to hit highs of $6.00 in the early market sessions on September 18th. The momentum has cooled, but the upside remains and higher gains cannot be ruled out.
Uniswap tops of DeFi
The total value locked in decentralized finance protocols has hit $9.01 billion, with the value of assets locked in Uniswap surging more than 81% in the past 24 hours to account for over 15% and top the leaderboard.
Uniswap has climbed to the top with $1.40 billion in total value locked, ahead of Aave with $1.35 billion and Maker with $1.15 billion according to data from DeFi Pulse.
Libra Association announces Blockchain Capital as the latest governance member
Blockchain Capital has joined the Libra Association as the project’s governance member. The investment firm will participate in the project’s decision making. The association recently appointed ex HSBC official, James Emmett. Libra Association, the now-independent member organization overseeing the Facebook-planned Libra token development, is notably becoming active on its mission in the recent days. On […]
- Blockchain Capital has joined the Libra Association as the project’s governance member.
- The investment firm will participate in the project’s decision making.
- The association recently appointed ex HSBC official, James Emmett.
Libra Association, the now-independent member organization overseeing the Facebook-planned Libra token development, is notably becoming active on its mission in the recent days. On Thursday, the non-profit association onboarded an ex HSBC official to lead the initiative forward. Today, it announced Blockchain Capital as its newest governance member.
Blockchain Capital joins Libra Association
The development was confirmed in a press statement published by the association on Friday. Going forward, Blockchain Capital, as a governance member, will participate in the key decision making for the development of both the Libra network and its Reserve. Specifically, the association noted that the company will recommend better ways to ensure the creation of the long-planned Libra payment system.
Also, the Vice Chairman of the Libra Association, Dante Disparte, said:
As a member of the Libra Association, Blockchain Capital brings deep industry insight and a dynamic network of supporters as we work on building a blockchain-based payment system that supports responsible financial services innovation.
Libra project is gaining more ground
Blockchain Capital, the newest governance member of the Libra Association, is notably one of the long-standing investment companies in the cryptocurrency and blockchain ecosystem. The venture capital firm has funded more than 80 industry companies, since its inception seven years ago. It reportedly holds investments in digital currency exchange, Coinbase, and Ripple.
Last year, may people had assumed that the Libra project would die-off as several prominent companies like Mastercard, PayPal, etc., began withdrawing from the association suddenly. However, the organization vowed to remain even with 21 company members then. Fast forward to today, the association seems stronger. It recently welcomed three new members, as Cryptopolitan reported.
Meanwhile, the organization has appointed the former HSBC top official, James Emmett, as the managing director of Libra Networks LLC, a company operating under the association. Emmett is to work towards the enhancement of “financial innovation and inclusion and to deliver the operationalization of the network.”
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