DeFi is the floor underneath the crypto market crash
Whether or not you believe we are in a fully-fledged crypto bear market, the past month has been an undeniably rocky period for cryptocurrency. From a high of $2.6 trillion on May 12, the market has tumbled 33% as of June 14, with crypto’s bellwether token — Bitcoin — now sitting at just over $39,500 from a high of more than $58,000 just a few weeks ago.
We have seen somewhat of a recovery in recent weeks: while a 30% market crash sounds bad, it is a solid improvement on the 42% that crypto shed peak to trough, when Bitcoin (BTC) dipped below $30,000 on May 24. This recovery has not been led by Bitcoin and its larger crypto colleagues, though, with the former recovering less than a fifth of its losses since May 24.
Ether (ETH), the world’s second-biggest cryptocurrency, has fared somewhat better. The native coin of the Ethereum blockchain recovered 36% between May 24 and June 14, while Ripple (XRP) has staged a 29% recovery. However, these gains still pale in comparison to coins and tokens associated with crypto’s newest and fastest-growing sector: decentralized finance (DeFi).
DeFi tokens lead the recovery
The flagship coin of the Binance network, Binance Coin (BNB), has gained an astonishing 58% since May 24 and this is thanks in large part to the fact it is the currency of transactions on the Binance Smart Chain (BSC) — the home of “alternative” DeFi away from the main Ethereum ecosystem.
Likewise, Pancakeswap — the token of BSC’s main exchange — is up 68% while Ethereum’s biggest decentralized exchange, Uniswap, is up 49% since May 24. Meanwhile, Curve DAO Token (CRV) — the governance token of the sector’s biggest stablecoin platform — is up 94% since bottoming out in late May.
It seems clear, then, that the DeFi ecosystem is playing a leading role in crypto’s current recovery. More than this, though, it can be thanked for supporting large swathes of the market during the crash. As mainstream retail investors were fleeing from their Bitcoin on some of the big centralized exchanges, far fewer of the more experienced traders in DeFi were doing the same.
Between May 7 and June 5, for example, trading volumes at Binance and Coinbase — the two biggest centralized exchanges — fell 70% and 67% respectively. In DeFi, however, volumes at Uniswap and Pancakeswap were down just 43% over the same period, while those at QuickSwap — one of the newest and most popular DeFi exchanges on Ethereum layer 2 solution Polygon — actually increased by 77% between May 7 and June 5 (although from an admittedly low base of $119.8 million to $211 million).
Stablecoins prove, well, stable
Most importantly, the area of DeFi where volumes increased across the board was stablecoins: the fiat currency pegged coins and tokens that form the backbone of the high-yielding opportunities that make the DeFi sector so attractive. At YIELD App, for example, we offer a base annual percentage yield of 10% on the US dollar-backed USDT and USDC coins with a further 10% available in YLD depending on how much of our native token a user holds.
This is the prevalent model for most wealth management platforms in DeFi, and one that users unsurprisingly flock to during times of trouble. In May, for example, net deposits of USDT into the YIELD App platform increased 15%, while net deposits of USDC more than doubled. Across the industry, the trend is broadly the same, with data from Dune Analytics showing a one-way trend for growth in users of stablecoins in DeFi.
Source: Dune Analytics
DeFi is crypto’s long term support
Through stablecoins and the many other on-chain banking capabilities that DeFi offers — including lending, borrowing and long-term investing — DeFi is establishing a firm and growing use case for cryptocurrency.
Wealth management platforms throughout the ecosystem are increasingly deploying strategies that allow their users to take advantage of the yields in DeFi, while minimizing their risk. In times of market turbulence, this passive income provides the relief crypto investors need to find the courage to hold the course.
Indeed, while stablecoins provide the ultimate buffer, passive income on an asset whose price is plunging is arguably even more valuable — especially for long-term investors. Throughout these periods, DeFi is able to provide a floor for the crypto market that was sorely lacking in 2018, and which should continue to support crypto in the coming weeks and months.
Unless otherwise stated, all data sourced from CoinGecko