First Mover: Chainlink’s Sorry September Returns Shows DeFi Hysteria Deflating

DeFi deflated.

That was the story in cryptocurrency markets in September as prices tumbled for digital tokens from “decentralized finance” (DeFi), the fast-evolving arena of blockchain-based lending and trading platforms.

Chainlink, which supplies data feeds to DeFi systems, saw its LINK token fall 42% month to date, the worst return among digital assets in the CoinDesk 20.

The DeFi market correction came at a time when traditional markets also were hit hard by growing anxiety over the increasingly contentious U.S. presidential elections in November and resurgent coronavirus cases in the U.S. and Europe, according to Anil Lulla, co-founder of the cryptocurrency research firm Delphi Digital.

It was a reality check after DeFi’s ebullient August during which traders speculated that the emerging sector would reap fast revenue growth buoyed by well-received debuts of DeFi protocols. Tokens mooned from Aave's LEND to Yearn.Finance's YFI and Spaghetti's PASTA. Total collateral locked in DeFi rocketed to $9 billion at the end of August from $2 billion at the start of July. It is currently at $11 billion.

The slowing rate of growth in September translated to a sell-off in DeFi tokens.

“If you look at August, crypto came off probably with one of the best months of performance ever,” Lulla said. “So I don’t think it’s unusual to see a breakdown, a little dip like this.”

The DeFi tokens’ monthly swings were bigger than for bitcoin (BTC), which slid 7.9% in September, after a 2.6% rise in August.

Matthew Hougan, global head of research at Bitwise Asset Management, noted that LINK’s decline followed a 10-fold rise in the 12 months through August. The token is still the best-performing digital asset the CoinDesk 20, up 458% year-to-date.

“That’s the crypto shuffle,” Hougan told CoinDesk in an email. “I don’t think anything has fundamentally changed about the story or the investment case. The DeFi market got a little bit ahead of itself and now it’s resetting.”

CoinDesk’s Zack Voell reported Tuesday that some crypto traders are shifting funds from alternative tokens into bitcoin in a bet that the largest cryptocurrency, with a market capitalization of about $200 billion, might prove a better bet over the next several months. And CoinDesk’s Omkar Godbole reported that data from the cryptocurrency options markets suggest that ether, the native token of the Ethereum network which serves as the backbone of DeFi, might start to take its cues from bitcoin’s price direction.

Bitcoin closed Tuesday at $10,836, setting a record of 65 consecutive daily closes above $10,000, the longest period in history.

The Norwegian crypto research firm Arcane Research also noted that the number of daily active addresses on the Bitcoin blockchain surged last week to its highest level since January 2018.

“This is a healthy sign and shows that the adoption and use of bitcoin is increasing,” the newsletter wrote.

- Muyao Shen

Bitcoin Watch

Cryptocurrency analysts are daring to venture into a categorization of bitcoin that would have been unthinkable a few years ago: That historically volatile bitcoin prices now be above $10,000 to stay.

"It is safe to say that the leading cryptocurrency has established itself as a 5-digit cryptocurrency this year," the Norwegian digital-asset analysis firm Arcane Research wrote Tuesday in a weekly report.

Bitcoin has now had 65 consecutive daily closes above $10,000, a record, and over the past six days the largest cryptocurrency has stayed in a tight range between roughly $10,600 and $10,800.

Diginex's Matt Blom wrote Tuesday that he sees price-support levels at $10,500, with "more solid support" at $10,350. Barring that, the next level of $10,150 would likely be "well defended by the bulls, should we reach it."

So the logical question is whether prices can sustainably break above $11,00 and maintain that higher plateau.

"Once the markets make up their mind direction-wise, we usually expect some sort of breakout from the short-term ranges," Greenspan wrote. "None looks more ready for this than bitcoin right now."

- Bradley Keoun

Token Watch

Yearn.finance (YFI): Governance deployment error that temporarily charged an additional fee of 5% for each withdrawal instead of the originally set 0.5% has been fixed.

Ethereum (ETH): Ethereum 2.0 developers have launched yet another testnet, this time to give on-boarding stakers a dry run before the launch of network upgrade later this year.

Zcash (ZEC): Gemini exchange adds "shielded" withdrawals of privacy token.

Cosmos (ATOM): Coinbase adds 5% staking rewards on blockchain-interoperability project's tokens.

Uniswap (UNI): Trading volume on decentralized exchange has declined over the course of September.

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