The DeFi boom has attracted much attention, but how long can the DeFi craze last?

The rapid popularity and investment growth observed in the decentralized finance (DeFi) space has been reflected on the price charts of DeFi and mining-related tokens, including Yearn.finance (YFI), Aave (LEND), and a few others that have surged to new highs in 2020. YFI alone has surged 10 times in price since its launch.

In fact, most high-profile DeFi-related tokens have far outperformed Bitcoin (BTC) and other altcoins. Even governance and infrastructure projects such as Chainlink (LINK) and UMA, which became one of the largest DeFi protocols in September, have pale in comparison to DeFi tokens.

As a result, with all eyes on DeFi projects and smart contract platforms like Ethereum (ETH) and Cardano (ADA), some sectors in the crypto world seem to be left behind. Most notably, payment tokens like XRP and Stellar (XLM).

Profit and loss comparison since December 2018 Source: CaneIsland Digital Research

While smart contract platforms like EOS have made some progress, it has failed to catch up with competitors like Ethereum, which became the center of the 2020 DeFi craze (because most DeFi-related tokens are Ethereum ERC20 tokens).

Ripple loses appeal

Among the top 10 coins by market cap, XRP has been one of the worst performers in 2020, recently losing its spot as the third-largest altcoin to Tether (USDT). Ripple is currently the fourth-largest cryptocurrency with a market cap of approximately $10.6 billion.

While XRP has gained 20% since the beginning of 2020, it lags far behind Bitcoin and many other altcoins. In Binance’s second quarter report, the exchange revealed that XRP is the fifth worst performing cryptocurrency on Binance.

Ripple also has multiple public issues, such as a long-standing class action lawsuit regarding the marketing and sales of XRP tokens. Ripple is also facing copyright-related lawsuits for its use of the “PayID” brand. Recently, Santander, one of Ripple’s major banking partners, expressed concerns when adopting Ripple’s international payment network, One Pay FX.

While things are grim for XRP, there are some positive signs for Ripple, such as growth in On-Demand Liquidity, which has processed over $2 billion in transactions since its launch. This is an 11x increase in the first half of 2020 compared to the first half of 2019.

XRP partner Flare Networks announced a project aimed at bridging the Ripple and Ethereum blockchains, and they also plan to move into the DeFi space.

Privacy coins are also left behind

Considering the speculation on DeFi and the growth of stablecoin usage, cross-border payments do not seem to be a hot topic in the crypto market at the moment. However, some other tokens are not performing as well as DeFi tokens, even including Bitcoin and privacy coins.

According to digital asset data firm Messari, Bitcoin has outperformed many of the privacy coins on the market, with popular currencies like Monero (XMR) and Zcash (ZEC) seeing modest gains compared to Bitcoin over the past 12 months, at around 5% and 20%, respectively.

When the DeFi bubble bursts, the tide will turn

While DeFi-related tokens have generated significant returns for holders in 2020, the craze has also spawned a number of clones and meme projects that capitalize on the DeFi hype.

The value of some tokens in the DeFi space has taken a major hit, including the SUSHI token, whose lead developer sold a large number of tokens in what some believe was an exit scam. Another DeFi token that has recently attracted media attention is Hotdog. This food-themed token lost 99% of its value in 5 minutes, leaving many investors with nothing.

While DeFi continues to outpace other sectors in the crypto space, users should be aware that many of these new projects have little to no product, reminiscent of the ICOs of 2017.

Therefore, the DeFi space may soon follow in the same footsteps, especially as the Ethereum blockchain continues to be overwhelmed. If this happens, there is a good chance that profits will return to Bitcoin, fiat/stablecoins, or other currently unhyped crypto areas.

On the other hand, DeFi shows little sign of slowing down anytime soon, especially as high-yield automated strategies continue to develop.

In the future, as investors look for “safer” assets to make money, some of these profits may flow back into Bitcoin and altcoins. Therefore, non-DeFi tokens and networks may not need to develop new use cases to attract investors.