Decentralized Finance (DeFi) knows no stopping, and several tokens reached a new all-time high this week. Are we in a bubble, or are we currently re-evaluating the DeFi sector?
DeFi has been performing better than Bitcoin (BTC) and Ethereum (ETH) for a few weeks now. The sector was able to win over many new users and investors, particularly due to the trading hype of the last few weeks. Since well-known trading apps like Robinhood and TradeRepublic have stopped trading some cryptocurrencies and stocks, many investors have been looking for alternatives in recent weeks.
Decentralized Finance, in particular, benefited from this development. This is due to the fact that in most DeFi projects, no central authority can stop trading and the protocols thus offer an alternative to the existing financial world.
In addition, the capital in decentralized finance logs grew to a record level of nearly $ 34 billion this week.
That represents a growth of almost 30 percent within the last seven days. But that’s not enough, the “ETF token” DeFi Pulse Index (DPI) rose this week by 46.16 percent to 413.53 US dollars at the time of going to press at.
DPI reflects the entire development of the DeFi sector very well, as it is made up of the 10 largest DeFi projects and has repeatedly climbed to a new all-time high in the last few days.
Universal Market Access (UMA) rose more than 200 percent in the past seven days, hitting a new all-time high at $ 41.56. But not only the DeFi- Derivate project UMA reached a new all-time high, but also the decentralized exchange (DEX) 0x (ZRX). Last Friday alone, the price of ZRX exploded 78.25 percent and is at $ 1.41 at press time.
In addition, several DeFi– Lending projects recorded an extreme price increase. Aave (AAVE), Compound (COMP), and Maker (MKR) each hit new all-time highs. AAVE, in particular, surprised many investors. The rally began on 28 January when the protocol publication of ave v2 migration Tolls was announced. The upgrade makes it possible to migrate all account information, including the tokens and lending positions used, to the updated protocol.
Since that change, the fundamentals of the project have grown steadily, and at press time, AAVE has over $ 5.52 billion under management. According to Maker, this makes the lending protocol the largest in the entire DeFi space. AAVE only recently hit a new all-time high at $ 512.77.
Similar to Bitcoin, institutional investors were mainly responsible for this, according to Treye Dahlem, an analyst at the crypto analysis company TheTIE. In addition, this week, billionaire and company Mark Cuban discussed the unlimited possibilities of decentralized finance on r / wallstreetbets. It turned out that he is invested in DeFi himself and is an enthusiastic Aave and sushi token holder.
The attractive returns and the increasing acceptance of DeFi attract more and more investors. Still, some investors fear a bubble will form. But one cannot yet speak of a bubble. Fundamentals such as the total value locked indicator and the number of users of many DeFi projects have grown extremely strongly in the last few months. Rather, there is currently a re-evaluation of the emerging Ethereum sector taking place, with more and more people using DeFi and also recognizing the future potential of the protocols. In addition, DeFi protocols such as UniSwap or SushiSwap generate several million US dollars a day and many DeFi tokens are already productive assets that offer their owners obvious added value. But the DeFi boom also has its downsides.
The Ethereum transaction fees are simply too high for the average consumer, and it seems that there will not be a solution for them anytime soon. In addition, the sector is plagued by hacking attacks, and sometimes there are smart contract errors that make users lose a lot of money.
Yearn Finance (YFI), one of the largest DeFi projects, was recently the victim of a flash loan attack. Yearn Finance is a protocol that provides users with automated investment strategies that investors can use to generate returns in the DeFi sector via a decentralized application. For this purpose, Yearn Finance uses capital profitably in other DeFi protocols. The whole thing is secured by a smart contract.
Unfortunately, hackers have now manipulated courses with the help of flash loans. As a result, it was possible for the attackers to withdraw capital from Yearn Finance.
So the DeFi sector is still more interesting for investors who are willing to take risks.
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