A Pull Back In Crypto But Not In Defi
With the total value of the defi market trending below the recently set high a question has arisen. Is the defi market cooling off? Based on our analysis, the answer is a resounding no, and here is why. Although the total dollar value locked into defi the total of crypto assets locked into defi continues to grow. The recent pullback in the value of the defi market is due to the pullback in crypto, notably the near-40% correction in Ethereum (ETH), and one that will not last long. Ethereuem, among other leading cryptocurrencies including the top defi tokens, is well on its way to setting new highs.
A look at the chart of Ethereum is very promising. After pulling back to the short-term moving average the bulls reasserted themselves and confirmed support. Since then the market has been moving higher with momentum shifting to the upside and new highs in the market’s sight. The price action over the past two weeks of trading days has been bullish and is forming what may become a flag pattern. If so, the next target for prices to peak out at is well above the current all-time high near the $2200 level. In our view, the $2200 level will only be a stopping point on the way to much higher valuations.
The Pulse Of The Defi Market
According to the website Defipulse.com, the total value locked into defi is about $41.25 billion as of March 11th, 2021. This is down about 10% from the peak when the defi market was worth $45.30 billion but well off the low when it was down 24%. Notably, the sell-off in the defi market coincides perfectly with the correction in Ether, the base blockchain for most defi applications. What we find interesting is the defi market itself only collapsed by 24% while Ethereum fell nearly 40% perhaps in testament to the underlying value and demand for the product/services. Ethereum is still down about 12% following its plunge.
As for the ETH 2.0 Beacon Contract, the uber-contract that will facilitate the implementation of sharding and sidechains of the Ethereum network, it continues to grow in value as well. The total number of validators staking at least 32 ETH on the chain is up more than 60% from mid-January 2021 with the total dollar value up more than 200%. The only negative in the news is that there is no longer a queue of new validators waiting in line to stake their Etherbut that doesn’t really matter. The Beacon Chain has already far exceeded its goals and is ready for the next phase of ETH 2.0 scheduled for later this year.
The Defi Pulse Index is a new addition to the world of defi. Run by Indexcoop, it is one of three crypto-based assets that investors can track and even trade. The index is market-cap-weighted based on the rankings provided by Defipulse.com with the purpose of tracking the defi projects that have the most use and commitment to decentralized finance. In the meantime, the index gets re-allocated monthly to ensure that changes in the market are well represented. Oddly enough, the index rankings skew significantly from the reality so beware of its value.
MakerDao Is Still The Top Defi Application
The MakerDao (MKR) network is still the leading defi application with a market cap of $6.8 billion and nearly 17% of the market. Maker is the governance token for the Dao lending platform. Holders of makers are, in effect, owners of the Dao network and are able to vote on its development. Users of the Dao lending network can collateralize their cryptocurrencies and use them to make or receive loans. Loan takers receive value and pay interest the liquidity providers earn as fees. In between are those that choose to hold the Dai (DAI) dollar-pegged stablecoins that are generated with each loan. Dai holders receive the Dai Daily Saving Rate which is recalculated multiple times per day and runs between 2% and 18% APR.