- The DeFi space is undergoing a reversal after months of mega gains
- Data shows that trading volume and liquidity are down, as well as the amount locked in DeFi projects
- A crash would allow quality projects to shine through and remove the charlatans and cheats
The DeFi space finally appears to have run out of steam, at least temporarily, after a memorable 2020. A combination of factors can lead us to the conclusion that, in the wake of a run reminiscent of the ICO boom of 2017, the space has finally recycled enough of its gains into the next meme or copy/paste yield farming project and looks to have topped out, which can only benefit the space.
TVL Has Plateaued
The Total Locked Value (TVL) is the total amount of money locked up defi projects. We all know that DeFi has enjoyed a stellar 2020, but the amount of money going into DeFi platforms is clearly plateauting:
We saw a dip in September, but this was a sharper drop that coincided with Bitcoin dropping from $11,200 to $10,100, whereas the current drop is a more gradual drop that reflects a slowly dwindling reduction in investment.
Liquidity and Volume Down
Mirroring the drop in the TVL is the liquidity and trading volume in the DeFi space. This drop is evidenced by two charts from the DeFi darling Uniswap:
As we can see, liquidity has stalled after a great recovery last month, while 24hr volume has been on a steady decline since topping out in early September. Simply put, this means that the amount of liquidity provided to Uniswap by users and the amount of money being traded on the platform is decreasing.
DeFi Tokens Crashing
We can also analyze the performance of prominent DeFi coins to judge the health of the DeFi space. We need to start of course with YFI, the token that rose to prominence in August by overtaking Bitcoin to become the most expensive cryptocurrency on the market.
YFI shot to $40,000 in August and then to $44,000 two weeks later, but it has since collapsed a remarkable 70% in just under a month:
Another Binance listing, YFII, has endured a similar fate:
Quality Projects Will Emerge From Correction
All the evidence presented here shows unequivocally that the DeFi space is, at the very least, taking a breather and could be in line for a huge reversal as we head into the fall and winter.
Such a decline would be a welcome break for many in the space who are getting fed up with the plethora of meme coins doing a 10x before a developer pulls the plug and sells out. A crash in the DeFi market would see scammers and charlatans abandon it, leaving room for quality DeFi projects to be created that take advantage of what it can offer rather than looking for a quick buck.
