Data shows that despite the drop in DeFi tokens, fundamentals remain at all-time highs

Since the recent highs, asset prices in the DeFi space have seen a sustained plunge. The DeFi Index perpetual futures tool on FTX, which tracks a basket of DeFi assets, has fallen nearly 50% from its high on September 1:

Many individual tokens have even seen further declines. For example, SRM and YFI have dropped more than 65% from their September 1 prices:

Many spectacular events have been fueled by intense speculative demand for investing in new tokens and platforms, and on the way up, the strategy has worked for many.

Self-described “DeFi Degens” filled exchange order books, on-chain Ethereum transactions, “Crypto Twitter” feeds, and Discord channels as fast as junior developers can generate new tokens. As DeFi token prices rose, Ethereum gas prices surged, clogging the network and driving out many small investors:

Self-proclaimed “DeFi Degens” filled trading orders, Ethereum on-chain transactions, and “Crypto Twitter” Discord channels at a rate comparable to the speed at which junior developers can generate new tokens. Let him along with the token price, Ethereum Gas prices soared, clogging the network and driving many small investors out of the market.

As we saw in the 2017 ICO bubble: throwing hundreds of dollars into dozens of brand new projects, speculators only need one or two of them to fully recoup their investment. Of course, this strategy favors speed and media attention over fundamentals and sustainability.

We’ve seen dozens of copycats that have capitalized on this influx of speculative activity. However, as with the rise of ICOs, the influx of inefficient capital has also fueled the legitimate development of new decentralized finance (DeFi). Furthermore, while many DeFi tokens have crashed, the USD value locked in DeFi protocols (TVL) remains near all-time highs.

Most of the mechanisms for locking in this value are more conservative than the wildly hyped mechanisms that have emerged in the “ponzinomics” projects that the definition references. Long-term smart contracts with multiple audits and clear use cases have been attracting funding. As mentioned in a previous article, can you also own Bitcoin and collateralize it? Many of these projects are focused on decentralized lending and market making.

Decentralized exchange Uniswap is the leading DeFi application listed on DeFiPulse by Total Value Locked (TVL), with nearly $3 billion in liquidity. The exchange now facilitates $100 billion worth of volume per day, with one massive day being $2.19 billion (likely due to the recent Harvest Finance exploit):

Overall, this decline appears healthy for the broader digital asset space.

• We have seen a crackdown on many dubious projects and a consolidation around more legitimate and sustainable projects.

• The Ethereum blockchain became usable again with lower transaction fees and confirmation times.

• A large amount of funding has been used to finance experimental development, allowing many interesting financial concepts or products to be explored and tested.