After several months, decentralized finance continues to be the true protagonists of the crypto world. And it is that after having increased their value exponentially in record time, the DeFi continue to attract the attention and capital of crypto investors. Therefore, and to keep you updated with the latest events in this sector of the market, today we bring you a report on the volatility in DeFi.
DeFi volatility in perspective
When you start to analyze the DeFi market, the first thing that jumps out is that, despite the fact that the rise of DeFi certainly continues. The main projects in the sector present mixed results, as consolidated protocols suffer small declines in their value. As new financial products burst onto the market, attracting the attention of crypto users.
Thus, the first DeFi project in the world by market capitalization, Chainlink suffered a drop throughout the week from $ 12.56 to the $ 10.13 at which it is currently traded. A situation similar to that experienced by yearn.finance, whose governance token, YFI, has been the center of attention for several days thanks to the rapid increase in its price. Despite which, in the last seven days it had a significant drop from $ 41,155 to $ 28,755.
This is a trend that has remained among the most established DeFi projects. With more or less slight drops like that of Aave that only decreased 8 cents in its price, from 0.70 dollars to 0.62. Even the strongest ones like Synthetix going from $ 5.90 to $ 4.36.
Of course there are exceptions, especially the cases of Maker and Dai, which presented great volatility in the week only to slightly increase their price. And that of the two new protagonists of the DeFi sector: Wrapped Bitcoin and Uniswap.
Thus, the fundamental explanation of why consolidated projects such as Chainlink and yearn.finance, first and second DeFi protocol by market capitalization respectively, have suffered strong price volatility. It is found in the disruption generated by the entry of Uniswap and Wrapped Bitcoin to the market. Which has attracted a large amount of capital that would normally have gone to other projects in the sector.
In the case of Uniswap, the disruption has been caused essentially due to the introduction of its new governance token, UNI. Which has been distributed through an airdrop to users who already participated in this DeFi protocol. What has meant in practice a distribution of thousands of dollars to Uniswap investors.
And it is that, at the moment when UNI went on the market, the attention of investors turned to the cryptocurrency. Especially thanks to the reputation Uniswap has acquired as a solid DeFi project. This led to an increase in the price of UNI, which went from 3.41 dollars to a peak of 7.29 dollars before falling back to 5.83 dollars where it is currently trading.
The Advancement of Wrapped Bitcoin
For its part, the second case that diverted investors’ attention from more traditional DeFi projects is Wrapped Bitcoin. Well, although this project has existed for several months, it is not until now that it has attracted the attention of the market. Due to the millions of dollars in Bitcoin that have been moved to Wrapped Bitcoin in recent weeks.
And it is that, Wrapped Bitcoin consists of a project based on the Ethereum Blockchain, which issues ERC-20 tokens with a total support of Bitcoin. Thanks to which BTC users can participate in the world of DeFi without having to give up their Bitcoins.
Thus, if we want to operate in the world of DeFi, all we have to do is place our Bitcoin as collateral for the Wrapped Bitcoin, and transform it back to BTC once we finish the transactions on the Ethereum chain. A feature that has come in handy during the DeFi rush, giving a strong boost to the capitalization of this coin.
Finally, a basic element to have a complete picture of the volatility in the DeFi sector, is the development in the price of Ethereum. Well, since the rise of decentralized finance began, the second cryptocurrency in the world has experienced a substantial increase in its demand, and therefore in its price.
This occurs because most of the DeFi projects in the world are based on the ETH Blockchain. Therefore, to carry out decentralized finance operations, Ethereum tokens are required with which to pay transaction fees.
A phenomenon that was especially evident during the UNI token airdrop. Well, to receive and trade the Uniswap tokens, their new owners needed Ethereum with which to pay the transaction fees. Creating a peak in demand which in turn explains the volatility that led to the increase in the price of Ethereum.