Fund manager on why DeFi’s Yearn.finance (YFI) dropped 75% from highs ๐จ This article is 4 years old...
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Fund manager on why DeFi’s Yearn.finance (YFI) dropped 75% from highs
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Updated: Nov. 7, 2020 at 2:17 pm UTC
Yearn.finance (YFI) has undergone a strong decline over recent weeks after a record-setting rally.ย
According to CryptoSlate market data, the Ethereum-based YFI coin currently trades for $15,800 โ a price 65 percent off the all-time high price of $44,000. At the recent trending lows, the cryptocurrency traded as low as $12,000.
This steep decline has shocked most investors: Yearn.finance has quickly become one of the most prominent blockchain applications in existence, providing Ethereum users an opportunity to easily and efficiently earn high yields on their deposits of assets. The project is also expanding into offering a series of services, including decentralized exchange, decentralized lending, and decentralized insurance.
But according to Sam Bankman-Fried, CEO of crypto trading platform FTX and fund/market maker Alameda Research, there are three key reasons why YFI slipped lower.
Why one of Ethereum DeFi’s hottest coins crashed so far
According to SBF, as the industry chief executive is better known, there are three core reasons why YFI has recorded such a steep decline in recent weeks:
- The rest of the DeFi market has undergone a strong correction, resulting in steep corrections in most players.
- Yearn.finance had a number of “bad PR events,” including some controversy over a side project called Eminence and a series of bugs in the protocol’s core products, called vaults.
- Yield farming yields have dropped dramatically. This hurts YFI especially because much of the token’s intrinsic value is derived from acting as a claim of a portion of the yields generated by the protocol.
selling $3m of YFI does not short it "to the ground".
It crashed because *all* of DeFi crashed, it had bad PR events, and yield farming in particular went down.
— SBF (@SBF_Alameda) October 10, 2020
Alameda is short YFI
It’s worth noting that Alameda Research, Sam’s fund, has been short YFI over recent weeks.
This fact came to light last week when users on Twitter noted that a user with large amounts of Wrapped Bitcoin was borrowing dozens of millions of dollars worth of Ethereum, Chainlink, YFI, and other cryptocurrencies.
As only Alameda Research and Three Arrows Capital had publicly minted such a large sum of WBTC, it was quickly ascertained that it was one of these two funds. Further analysis revealed that it was the former.
Borrowing through decentralized protocols often means someone is trying to short an asset: one could borrow ETH, for instance, then deposit it on a centralized exchange, sell it, then buy it back later for lower.
It was thus assumed that Alameda was shorting YFI on exchanges to the tune of millions of dollars, resulting in the price capitulation we have seen over the past week.
Alameda is short $ETH, $LINK and $YFI in size. Let's blow them up. pic.twitter.com/yTMBGSzwIE
— Alex (@classicmacro) October 10, 2020
Sam Bankman-Fried recently confirmed that this is true. However, he caveated that with the assertion that Alameda Research, at least on October 10th, was only net short $3 million on YFI. He proceeded to show a screenshot of his firm’s Binance account, which still holds 133 YFI.
“Much of that was staked, wasn’t all borrowed at once, net short was only $3m, though there was no way to know that without seeing the whole books.”
Of note, Alameda Research is a market maker that purportedly facilitates billions of dollars worth of volume each day.
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Chainlink
$15.4579
Chainlink is a decentralized oracle network that connects smart contracts on the blockchain to real-world data.
Wrapped Bitcoin
$66,036.62
Wrapped Bitcoin delivers the power of Bitcoin with the flexibility of an ERC20 token.
FTX
FTX is a defunct cryptocurrency exchange, currently in bankruptcy proceedings, that was founded by Sam Bankman-Fried and Zixiao “Gary” Wang in May 2019.
Sam Bankman-Fried is the former CEO, and co-founder of defunct crypto exchange FTX and Alameda Research.
