The DeFi Unwind Could Become Destructive

October 21, 2020 09:16 AM
Crypto and Bitcoin Market Cap Story of Day

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Select Top 10 cryptocurrencies are rallying this morning after Paypal officially announced plans for crypto functionality. Bitcoin (BTC) is decisively above USD 12,000 for only the second time in 2020.

Crypto Story of the Day

A DeFi unwind is occurring with more of a whimper than a bang as BTC outperforms and decentralized exchange volume (DEX) volume falls off.

Uniswap, the most active DEX, hosting the vast majority of DeFi tokens, has seen a drastic decline in volume since September. Uniswap set a record on September 1, hosting nearly 1 billion in USD equivalent transaction on the platform. Over the last few days, volumes are about 10% of those levels in the USD 100 million  range and the trend points lower. At the same time, DeFi tokens such as COMP have lost about half of their market cap over the period. Amid the decline, BTC dominance moved above 60 for the first time since early August.

We’ve yet to see the major destructive unwind that looked so likely to occur in the DeFi frenzy on the way up. That said, it may still be around the corner. There are still more than 10 DeFi tokens with over a USD 300 million market cap, the majority of which reflect protocols that have existed for less than a quarter. Furthermore, many of the protocols are unlicensed and trading on offshore exchanges. Given U.S. regulators' harsh tone and actions  from around such venues over the last few weeks, regulatory backlash is a growing and arguably near-term risk.

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About the Author

FRNT Financial is a technology and sales layer that offers institutional and accredited investors access to various forms of exposure to crypto-assets. You can subscribe to FRNT Financial Morning Note at https://www.frnt.io/morningnote