Will the income of “winter” in advance bring the DeFi ecology into a death spiral?


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Original author: Nivesh Rustgi

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Source: Carbon Chain Value (ID: cc-value)

Editor’s note: Due to the increasingly bleak returns of multiple leading DeFi platforms, the growth of this niche market seems to be slowing down. Many industry insiders believe that the “DeFi boom” that has been hot for a summer has finally begun to cool.

Content overview

1. The fall in the price of DeFi governance tokens seems to indicate that the market bubble is bursting;

2. Since September, the annual return rate of the DeFi platform has fallen sharply;

3. The DeFi lock-up volume has also begun to shrink, and it is currently testing the $10 billion support level.

The DeFi bubble starts to burst

YFI is the governance token of yEarn Finance. Its price has risen 1,000% since the beginning of August, once soaring to a high of about 45,000 US dollars, but it has now plunged by 48%. Not only that, the prices of the governance tokens COMP and MKR of the leading DeFi platforms Compound and MakerDAO have also fallen by 60% and 30%, respectively. Aave is also not optimistic. The current price has fallen by 50% from the peak.

提前「入冬」的收益会将DeFi生态带入死亡螺旋吗?The picture above is the price comparison between Aave (red) and COMP (blue) and MKR (green). Source: TradingView

As the price of the top DeFi tokens plummeted, the DeFi ecosystem also seems to have fallen into a death spiral, because the return rate of liquidity providers (LP) is closely related to DeFi tokens, and the drop in token prices will also cause the LP return rate to fall. . Currently, liquidity providers on the DeFi platform mainly have two sources of profit:

1. Network income, such as Uniswap fees and Compound loan interest rates;

2. The governance tokens obtained by selling profit farming.

Due to the soaring price of DeFi tokens, tokens derived from income farming have become the largest source of income for liquidity providers. However, the problem is that the price of DeFi tokens will rise mainly depending on buyers who are willing to continue to purchase farming tokens. DeFi community user @DegenSpartan explained a “cruel” reality:

“Proceeds will not magically flow into your hands because of a better treasury or investment strategy, unless you can really create value. As long as a “brain-disabled” subordinate buys tokens, the income will exist. When these retail investors invest When no one cares about the tokens in the hands of the owner, the proceeds will disappear.”


Low yield leads to a drop in DeFi lock-up volume

In the past September, the average annual rate of return of the Curve liquidity pool reached 13%, and some liquidity pools could even get a return rate of as high as 410%, but just last week, the return of the Curve liquidity pool was almost halved.

YEarn also encountered similar difficulties. In the past week, the annual return rate of yEarn’s WETH “treasury” was only 0.68%. It is important to know that the annual return rate of the “treasury” when yEarn was first launched was 75%; in addition, yEarn The current rate of return on the stablecoin “treasury” has also fallen to 10%, but it could be maintained between 25% and 60% before.

提前「入冬」的收益会将DeFi生态带入死亡螺旋吗?The figure above shows the top five yEarn “treasury” in terms of total holdings and revenue. Source: yearn.finance.

提前「入冬」的收益会将DeFi生态带入死亡螺旋吗?The size of the Y pool on Curve has plummeted 22% in the past two days, and its market value has fallen below US$200 million (as shown by the green line in the above figure, source: Curve.fi)

Since September, the income of liquidity providers from Uniswap has also been declining, which indicates that the growth of decentralized token exchange transactions has slowed down.


The performance of other DeFi market segments seems to be unsatisfactory. For example, the lock-up volume of DeFi derivatives and payment categories dropped by nearly 50% from the peak in September, while the lock-up volume of DeFi lending platforms and decentralized exchanges Also touched a lower level.

提前「入冬」的收益会将DeFi生态带入死亡螺旋吗?The above figure shows the trend of locked positions in the four DeFi subcategories of lending, decentralized exchanges, derivatives, and payments. Source: DeFi Pulse.

Will the DeFi industry really go to “death”? not necessarily!

For now, the DeFi industry has not yet come to an end.

A cryptocurrency market analysis company found that some DeFi “giant whales” had already hoarded coins during the period when the market began to fall, and several decentralized financial assets including Synthetix (SNX) have appeared as “giant whales”.

On the other hand, volatility in the cryptocurrency market seems to be a “normal”, and DeFi is no exception. Usually after a period of strong speculation, there will always be short-term or medium-to-long-term corrections in the crypto market, especially when the market supply and demand relationship changes suddenly, the value of crypto assets will fall sharply.

DeFi is an emerging industry, and the time since its birth is actually very short. Assets such as Yearn Finance, UMA and Uniswap (UNI) have not undergone too many market tests, and have not formed enough order depth to resist sudden selling. Relatively weak strength is also reasonable. At the same time, there are still some more mature projects/agreements in the DeFi market, such as Maker (MKR) and Kyber Network (KNC), none of these projects/agreements have plummeted.

In response, some DeFi project agreements have begun preparations, hoping to retain users through upgrades and improved incentive measures, such as:

1. The yEarn developers are about to launch the current version upgrade “V2 Vault”, YFI holders also have high hopes for this;

2. Curve has also added a new fund pool and implemented a new investment strategy to restore platform revenue.

Once the rate of return decreases and the downward trend of mainstream governance tokens stops, the DeFi market can still attract new participants.


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