Even after parabolic rally, top crypto VC thinks Ethereum DeFi isn’t overvalued 🚨 This article is 4 years old...
Even after parabolic rally, top crypto VC thinks Ethereum DeFi isn’t overvalued
2 min read
Updated: Sep. 20, 2020 at 9:16 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
It’s clear excess and euphoria is starting to seep into Ethereum’s DeFi space. Uniswap nearly reached a $1 billion circulating market capitalization just two days after its launch, a food coin called Pickle surged 1,000 percent in a day, and Yearn.finance (YFI) has gained over 1,000,000 percent since its July launch, to name just a few trends.
To put this into more broad and absolute terms, there is now $10 billion locked in mainstream DeFi contracts according to DeFi Pulse. At the start of the year, this single metric was extremely close to $500 million.
Even after all this, there may be reasons to believe that decentralized finance is not yet overvalued on a longer-term time frame.
Is Ethereum’s DeFi space really overvalued yet? A top investor is not too sure it is
After DeFi coins doubled and tripled within the span of a few weeks in June, Mechanism Capital founder Andrew Kang came out with a Twitter thread outlining his thoughts on DeFi’s trend of growth.
As this outlet covered at the time, he was not then convinced that this crypto market segment had reached a top, going as far as to say that it was in the early stages of a parabolic growth cycle.
Kang was proven correct in the two months that followed, as coins in the space continued to double and triple and rally higher on even bigger multiples.
He is now back again, having been proved correct, and he’s saying that there is still space for DeFi to grow.
On Sep. 19, he wrote:
“TVL in DeFi is up ~20x since 2019 and DeFi market cap is up a similar amount. I don’t think price has seriously outpaced fundamentals yet. Seems low EV to cashout for a short trade and potentially miss out on parabolic growth.”
TVL in DeFi is up ~20x since 2019 and DeFi market cap is up a similar amount
I don't think price has seriously outpaced fundamentals yet
Seems low EV to cashout for a short trade and potentially miss out on parabolic growth pic.twitter.com/xWo2oCXZg3
— Andrew Kang (@Rewkang) September 19, 2020
Kang added that realistically, it may only take $50 million worth of new capital to drive this space up by 10% or even more.
With much capital entering the DeFi space as institutional investors get excited, growth may continue in the medium to long term.
Certain factors could drive this market lower
While DeFi may not be overvalued, there may be some trends that can trigger a further short-term correction after the already 10-30 percent drop that has transpired in this segment of the crypto market.
As reported by CryptoSlate, crypto analyst “Theta Seek” commented that there are three crucial reasons why DeFi’s growth may be reaching a plateau for the time being. These include but are not limited to:
- Risk of funds caused by poor user experiences and tools
- A slowdown in the value of capital and interest entering the space
- Regulatory pressure as regulators eye the vast amounts of capital sloshing around in DeFi, along with the hacks.
It may just be that investors are sitting on the sidelines and are not advancing into this space due to the aforementioned risks and issues such as poor user experiences and potential regulatory pressure.
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Ethereum is a decentralized, open-source blockchain platform that enables the creation of smart contracts and decentralized applications (DApps).
Uniswap
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Since its inception, the Uniswap Protocol (“Uniswap”) has served as a trustless and highly decentralized financial infrastructure.