Why this prominent crypto analyst thinks Ethereum DeFi has topped for now 🚨 This article is 4 years old...
Why this prominent crypto analyst thinks Ethereum DeFi has topped for now
3 min read
Updated: Sep. 19, 2020 at 2:15 pm UTC
Photo by Michał Parzuchowski on Unsplash
Despite weakness in legacy markets, Ethereum has performed well over the 36 hours since the launch of Uniswap’s UNI token. From the time of the announcement, the coin has gained in excess of five percent, outperforming a majority of other cryptocurrencies.
Decentralized finance coins, though, have not performed as well.
Per CryptoSlate market sector data, many top DeFi coins including Yearn.finance, Aave, UMA, and Synthetix Network Token have slipped over five percent in the past 24 hours, underperforming ETH by 10 percent and BTC by six percent.
Analysts think that this trend of DeFi underperforming Ethereum — something that hasn’t been seen in months — may be the beginning of the end for decentralized finance’s phase of growth in the short term.
One prominent market commentator released a Twitter thread on the matter, outlining why he’s calling the medium-term DeFi top.
This analyst is calling a top in Ethereum DeFi for these reasons
Prominent crypto derivatives trader “Theta Seek” is calling a top on the DeFi market after this space has surged exponentially since the launch of Compound’s COMP token in June.
His primary contention with DeFi is that right now, it’s “too difficult to use” for the average user, especially those that are just being onboarded into the crypto space:
“While traction for DeFi (AMM + deposits/yield) has grown tremendously over the past few months, DeFi is difficult to use, the ability to lose funds scares most new users away.”
He specifically cited the story of a user spending $1 million worth of Tether’s USDT on a contract where he couldn’t retrieve his funds.
DeFi thread – Why I am calling the top (At least for now)
1/ DeFi is too difficult to use.
While traction for DeFi (AMM + deposits/yield) has grown tremendously over the past few months, DeFi is difficult to use, the ability to lose funds scares most new users away.
— Theta Seek (@thetaseek) September 18, 2020
Theta also noted that the value of capital entering the DeFi space is likely slowing down:
“A more visible metric is the speed of increase in stablecoins market cap. Other than ETH, USDC is one of the most used stablecoin in the space. MarketCap of USDC increased by 800M (“new money”) in the past month while DeFi market cap inflates by more than 3B in the same period.”
This may be the case as many DeFi coins have printed technical tops over recent weeks, falling dramatically from the highs where they were at the end of August or at the start of September.
Only compounding this, Theta remarked that DeFi has reached a point where regulators may begin to target companies and innovators in the space, especially if there are any notable bugs, hacks, or other questionable trends transpiring in the space.
Not the only one fearful of a loss of momentum
It’s important to highlight that Theta Seek isn’t the only analyst that is fearful that it may be time for DeFi to cool down after a jaw-dropping rally over the past three months.
Crypto analyst Ryan Watkins commented on Sep. 17, referencing the ongoing network congestion:
“Ethereum is damn near unusable right now. I can only imagine what retail will think if they eventually come into this market and face $50+ gas fees and 10+ minutes transaction confirmations… This has been my biggest anxiety about this bull market. The protocols are ready, the infrastructure is not.”
Watkins is not alone in sharing this sentiment. Many others following the space have noted that a number of factors, largely user experience shortfalls, could put pressure on DeFi until technologies like ETH2 and EIP-1559 are implemented.
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Since its inception, the Uniswap Protocol (“Uniswap”) has served as a trustless and highly decentralized financial infrastructure.
Synthetix
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Synthetix, formerly Havven, is a cryptoasset-backed network that enables the creation of on-chain synthetic assets.
UMA
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UMA is a decentralized financial contracts platform built to enable Universal Market Access.