The DeFi Pulse Index inclined by 28% in the last three days.
The total Value Locked in the DeFi market has been reduced to just $74 billion.
Underlying tokens include Uniswap, AAVE, and Loopring, among others.
The growth of the Decentralized Finance (DeFi) market is essential to the growth of crypto if it intends to make web3 mainstream. But the recent market crash dwindled the faith investors had in DeFi protocols resulting in losses far worse than the recent crash.
The DeFi Pulse Index
Also known as DPI, this Index is a digital asset index designed to track tokens’ performance within the DeFi industry. By evaluating the value of each DeFi token, the DPI bases its Index on either positive or negative.
The protocols that are tracked by the Index are not selected randomly, as only the ones that have major use cases and consistent development and maintenance make it to the Index.
During the recent market crash of June, the Index depreciated by 45.31% and closed at a low of $58.3. Since then, the broader market recovery triggered a rise for the Index as well, resulting in the 28.06% rally bringing the value of DPI to $75.6.
While the DPI has recovered slightly, the DeFi market’s total value recovered by $3 billion as well. However, an increase as minute as this will bring no significant change as the market lost more than $160 billion in the span of 2 months.
This is because as soon as the crypto market was hit with bearishness, it broke the confidence investors had in DeFi protocols as well.
Add to this the depegging of TerraUSD and the fall of the second biggest DeFi chain in the world, Terra, and you get the decline observed.
Cosmos and a few other alts were the only few to close in the green today.
Ethereum partook in the active downtrend losing more than 11%
Bitcoin followed a similar path and ended up trading at $20,855.
The broader market was expected to correct the ongoing correction, but the king coin, Bitcoin, and other altcoins decided to go down another path. Consequently, over $50 billion was wiped out of the crypto market in 24 hours.
ATOM was one of the only few cryptocurrencies that closed in green at the time of writing following days of red candles.
The altcoin had already witnessed a price fall of 32.8% within the span of a week, which only further added to the 86.4% depreciation observed since the coin hit its all-time high of $44.51.
Thus some recovery would instill confidence in ATOM holders. And recovery is on the charts since MACD was heading towards a bullish crossover at the time of writing, with green bars appearing on the indicator.
Unlike ATOM, Maker DAO’s native token MKR continued its downtrend, losing more than 10% in a single day. This has brought the price down to $701 from the highs of $2,301 the altcoin was at less than two months ago.
Since April, the cryptocurrency has not been able to flip the 50-day Simple Moving Average (SMA) and the 100-day SMA into support, which has led to multiple dips.
In 2 months, MKR has dipped by 57%, 29%, and 48.5% on separate occasions as both the SMAs acted as a resistance level for the coin.
The Bored Ape Yacht Club (BAYC) token marked another drop on the charts, 11.54% nonetheless, as the altcoin came down to trade at $3.23.
The slight growth observed yesterday did not do much for the coin anyways, as APE is 43.4% below where it was a week ago.
The Relative Strength Index (RSI) remained stuck in the bearish zone inching closer to the oversold zone, a slip into which might cause the coin to fall further.
Surprisingly the DeFi protocol token managed to sustain a rise at the time of writing, climbing the charts by 10.08%.
Trading at $3.44, CAKE still has a long way to go in order to recover the losses witnessed throughout the week as it declined by 31.36%.
However, the coin is observing no support from the price indicators as to whether the rally could go on. The Parabolic SAR continued to suggest a downtrend, which could keep the price consolidated for a while even if it doesn’t reduce further.
Bitcoin Cash (BCH)
The Bitcoin hard fork is facing the wrath of the bears, similar to other cryptocurrencies, sinking by almost 12% today following the 40% plunge observed in the last eight days.
Trading at $113.59 at the time of writing, BCH might continue its downtrend for a few more days.
This is because bearishness has only increased instead of diminishing, according to the Awesome Oscillator. The appearance of growing red bars backs the possibility as well.
Decentralized Finance (DeFi) coins have revolutionized the way we think about and use cryptocurrencies on a global scale.
They do this by enabling a heightened level of functionality, such as taking, governance, and yield farming.
There is genuine power found within DeFi tokens, and we will be going over MKR, CRV, and AAVE.
Throughout the past week, we have seen an increase in the overall value of cryptocurrencies, as well as their trading volume, as the crypto market has started to recover from its recent slump.
This can be attributed to an announcement made on May 31, 2022, where Singapore’s Deputy Prime Minister Heng Swee Keat introduced us to “Project Guardian,” which will explore the tokenization of financial assets, as well as their various use-cases within the decentralized finance (DeFi) space.
The Monetary Authority in Singapore will collaborate with top banks, as well as digital asset companies, alongside digital infrastructure firms under the project.
They will pilot-test the feasibility, financial stability, and any of the risks associated with the integrity as a means of creating a regulatory framework for this initiative.
While this will initially occur in Singapore, if successful, we could see it roll out in other regions as well.
Bitcoin is up 3.62% in the last 2 hours as of May 31, 2022, and its trading volume has increased by 34.24%. It is clear that with this movement, altcoins will also see a spike in popularity and value.
With this occurring within the crypto space, the main thought circling investor minds is which DeFi tokens are actually worth investing in throughout the coming week, and we have selected the top 3 ones you need to look out for.
We will be looking at Maker (MKR) Curve DAO (CRV) and Aave (AAVE).
The Maker cryptocurrency has seen a solid level of growth in terms of its value as well. With a 7-day high of $1,375.18, this cryptocurrency is showcasing a solid potential for recovery.
As of May 31, 2022, the cryptocurrency was trading at $1,331.35. We are at a point in time where the cryptocurrency has gained some momentum, and if it manages to break past the $1,400 price barrier, we could see a bullish outcome for the cryptocurrency.
This bullish run is also boosted by the fact that Maker announced that the StarkNet Dai bridge had been enabled on starkgate.starknet.io.
Curve DAO (CRV) is the cryptocurrency for the decentralized exchange that aims to offer users the ability to exchange stablecoins. It is a platform fully governed by mathematical features designed to let stablecoins rate for advantageous rates.
As of May 31, 2022, Curve DAO (CRV) was trading at $1.361. Its 7-day high was at $1.39, and its all-time high was on August 14, 2020, at $15.37.
Here, we can see that the cryptocurrency is recovering quite well and has huge potential for growth going forward.
If Curve (CRV) does indeed manage to break past $1.5 as a price barrier, we could see this cryptocurrency climb to $2 or even above in the upcoming months, making it yet another DeFi cryptocurrency worth looking at.
Aave is an open-source protocol aimed at enabling the creation of non-custodial liquidity markets through which interest can be earned on supplying or borrowing cryptocurrencies.
On March 16, 2022, Aave rolled out V3 of its protocol, which aimed at bringing new features such as increased capital efficiency to enhanced decentralization.
1/ Aave V3 is here! 👻
The most powerful version of the Aave Protocol to date, V3 brings groundbreaking new features than span from increased capital efficiency to enhanced decentralization. Read what’s new in V3 in the thread below👇or visit https://t.co/H3jTyKRqNs to dive in! pic.twitter.com/LXzn7660nA
Ultimately, this led to an increase in its value. On May 31, 2022, Aave was trading at $118.47.
The cryptocurrency had its 7-day high at $120.94, which, while still far away from its all-time high on May 18, 2021, at $661.69, does showcase signs of confidence. In fact, throughout the last 24 hours alone, the cryptocurrency increased in value by 11.5%.
We can expect to see an increased level of utility surrounding Aave, which could lead to an increase in the value of its native cryptocurrency token.
A rebound in global equity markets is helping lift crypto markets from Monday’s lows.
But cryptocurrencies are still mostly lower on the week as focus shifts to US retail data and Fed speak.
Bitcoin has rebounded to the mid-$30,000s from Monday’s lows around $29,000.
State Of The Market
Global equities are on the front foot following a strong Asia Pacific session, where sentiment was boosted amid positive reporting on a decline in Covid-19 cases and easing restrictions in Shanghai and on the possibility that China might soon ease its crackdown on big tech, thus (modestly) easing fears about the current slowdown in global growth.
S&P 500 index futures are currently trading about 1.75% higher in pre-market trade, while Nasdaq 100 futures are more than 2.0% higher. This is giving a lift to cryptocurrency markets, which have shown to be tightly correlated to US equities in particular as of late.
The total market capitalization of cryptocurrencies was last up about 2.5% in the $1.3 trillion area, up around 5.0% from Monday’s dip to $1.24 trillion. But that still leaves total market capitalization lower by around 2.5% on the week and around 56% below last November’s record highs above $3.0 trillion.
Concerns about aggressive monetary policy tightening from major central banks (most notably from the US Federal Reserve) continue to dampen the prospect of a more meaningful crypto (and equity) market rebound.
NY Fed President and influential FOMC member John Williams gave no indications that the Fed is looking to slow the pace of monetary tightening in the month ahead, instead emphasizing the Fed’s stance that controlling rampant inflation remains its number 1 priority.
Plenty more Fed policymakers will be speaking on Tuesday, most notable of which is remarks from Fed Chair Jerome Powell from 1800GMT. Markets currently expect the Fed to hike rates by 50 bps at its next three meetings in a bid to get interest rates to around 2.5% by the end of the year.
While there is room for more of a relief rally in crypto if equities continue recent positive momentum, traders should be cautious about assuming the bottom is in. For the bottom to truly be in, we will likely need to see inflation in the US (and elsewhere) moderate, the Fed soften its rhetoric on the need for tightening and global growth fears abate somewhat.
US retail giant Walmart will both be posting their Q1 earnings results, whilst US Retail Sales data for April is also out at 1230GMT, meaning there will be a lot of focus on the underlying strength of the US consumer. Given consumption is the major growth engine of the US economy, this data could impact broader macro and crypto market sentiment, so will be worth monitoring.
Bitcoin, Ethereum, Altcoins
In tandem with the broader improvement in macro and crypto risk appetite, bitcoin is trading higher by about 2.5% on Tuesday just above the $30,500 level per token, taking its gains versus Monday’s lows around $29,000 to around 5.0%.
That gives the cryptocurrency a market cap of around $580 billion, while its crypto market dominance is stable at around 45%. Nonetheless, BTC/USD is still trading lower on the week by about 2.0%, meaning it is currently on course for a record eighth successive weekly decline.
Eight weeks ago (i.e. the end of March/the start of April), bitcoin went as high as $48,000, and so has dropped by more than 35% during this time.
Ethereum, meanwhile, is trading higher by about 3.5% near the $2,100 level, up around 6.0% versus Monday’s sub-$2,000 per token lows, but still down by about 2.2% on the week. That puts ethereum on course for a seventh successive weekly loss, during which time it has dropped roughly 40% back from the $3,500 area.
According to Bloomberg commodity strategist Mike McGlone, bitcoin and ethereum will outperform equities in the future as their volatility continues to decline. Referring to bitcoin in an interview with Yahoo Finance, McGlone said “asset that went up the most in the last 5-10 years is going to come back as the Fed hammers down.”
Elsewhere, traders in Brazil will be able to trade bitcoin and ethereum futures in the next three to six months on the B3 stock exchange.
Brazilian Stock Exchange B3 will offer Bitcoin and Ethereum futures in three to six months. The exchange is also planning to offer studies for asset tokenization and crypto trading, among others.
In other news, China was still the second-largest bitcoin hash rate providing country in the world in January despite banning cryptocurrency mining last year, according to data released by the Cambridge Bitcoin Electricity Consumption Index (CBECI) on Tuesday. Bitcoin miners in China still accounted for about 21.1% of the network’s global hash rate, while the US accounted for 37.8% of the global hash rate.
An index of the top ten altcoins was up more than 3.0% on Tuesday in tandem with the broader uptick in crypto market sentiment. Top ten non-stablecoin cryptocurrencies including Solana’s SOL (+5.3%) and Cardano’s ADA (+5.5%) for the most part outperformed the likes of bitcoin.
The market cap of the major DeFi tokens fell to around $53.7 billion as of the early hours of Tuesday trade, CoinGecko data showed. It has been relatively stable in the $50-60 billion area over the past few days after dropping back from above $100 billion at the start of the month following the collapse of Terra’s LUNA and UST tokens.
As of Tuesday, the total value locked in the entire DeFi space remained close to $100 billion, data from DeFi Llama showed. It has been stable at around $100 billion in recent days after collapsing lower from above $180 billion in wake of Terra’s downfall.
There has been a lot of focus on the outperformance of MakerDAO’s governance token MKR as of late. MakerDAO is the creator of US dollar-pegged stablecoin DAI which has held up well despite turbulence across stablecoin markets.
MKR/USD is up more than 75% from a brief dip below $1,000 per token in the immediate aftermath of TerraUST’s initial de-pegging from the US dollar.
The token currently trades in the upper $1600s, giving it a market cap of around $1.64 billion, making it the seventh-largest of the major DeFi tokens. MKR’s recent strong performance comes despite investors pulling money out of DAI in recent weeks.
At the start of May and prior to UST’s crash, DAI had a market cap of around $8.7 billion, compared to now being around $6.5 billion. DAI still has the second-largest market cap of the major DeFi tokens.
In terms of notable news stories related to the DeFi space, Coinbase is reportedly testing a new in-app browser that will allow users to access ethereum-based decentralized Apps (or dApps). Users will be able to exchange funds into these dApps through a new co-custodial hot wallet.
Terra Founder Do Kwon proposed on Monday proposed forking Terra onto a new chain that gets rid of its failed UST algorithmic stablecoin, with the new chain to instead be focused on the development of DeFi applications.
Kwon said the current chain would continue and be called Terra “Classic”. LUNA holders on the current and soon-to-be “Classic” Terra chain will receive a token airdrop on the new chain. The proposal is at the moment just that, but Kwon said that, if approved by Terra’s network validators and community, the fork could take place as soon as 27 May.
As of 0500GMT on Tuesday, exchanges had seen a net outflow of $326.5 worth of bitcoin in the last 24 hours, a sign of improving investor confidence, Glassnode data showed. Ethereum, meanwhile, saw an even heftier net outflow from exchange wallets worth around $977.7 million. USDT saw a net inflow to exchange wallets of around $430 million, a sign confidence in stablecoins is yet to fully recover.
US Securities and Exchange Commission Chair Gary Gensler took aim at cryptocurrency markets once again on Monday, saying that investors need to be provided with more protections. According to Gensler, those who invest in cryptocurrencies don’t normally get the same disclosures about their investment that come with investments in other asset classes.
Elsewhere, the US launched its first case involving the use of bitcoin to evade sanctions. The defendant in the case stands accused of creating a payments platform that moved approximately $10 million worth of bitcoin through it, with the defendant allegedly boasting that the service could be used to evade sanctions.
Meanwhile, European Central Bank officials are calling for regulation in wake of Terra’s collapse last week. According to Bank of France Governor Francois Villeroy de Galhau, “crypto-assets could disrupt the international financial system if they are not regulated, overseen and inter-operable in a consistent and appropriate manner across jurisdictions”. Separately, ECB executive board member Fabio Panettarecently warned that “stablecoins are vulnerable to runs”.
Portuguese Finance Minister Fernando Medina stated that Portugal is building a framework that tees up the taxation of cryptocurrency income gains. Portugal has up until now been seen as something of a European crypto tax haven given its lack of crypto-related taxation.
Meanwhile, over in Australia, the Australian Taxation Office (ATO) has warned cryptocurrency investors that they must report capital gains/losses from digital assets, including non-fungible tokens (NFTs), in an announcement on Sunday. Australia’s next tax season begins on 1 July.
BTC’s price has established the $30,000 mark as support again.
The global cryptocurrency market cap is back above the $1.3 trillion mark.
Altcoins like XRP, SOL, XMR, and MKR could be some tokens to watch out for this week.
The last week brought bearish waves for the larger crypto market, as the king coin’s price slid by almost 30% in the previous ten days to visit the near $25,000 zone for the first time since late 2020.
The BTC-induced losses and the fall of Terra’s LUNA and UST pulled the global crypto market cap down to $1.29 trillion at the time of writing.
However, towards the end of last week, bitcoin’s price started to recover from the $26,000 mark making its way above the $30,000 zone. As BTC trades just under the $30,000 psychological barrier, the current market sentiment remains in ‘extreme fear.’
That said, traditional assets were down too, S&P 500 was down 17% this year, and the Nasdaq was off 27% since January. These losses present the pain for the many investors who took bigger gambles on risky assets.
Notably, more than $500 billion evaporated from the cryptocurrency market over the last week as the market cap slipped to a low of $1.2 trillion. Data from the Bloomberg Galaxy Crypto Index (BGCI) suggested that cryptocurrencies delivered negative returns of about 33.9% over the last month.
Nonetheless, at press time, with bitcoin price’s short-term recovery above the $28,500 resistance, most altcoins traded in green, as highlighted in FXEmpire Weekend Wrap. So, as a short-term recovery takes off, let us look at some of the top coins to watch closely over the coming week.
On May 12, the Bitcoin market sold off to $25,400 and within 6% of the realized price ($23,960), as highlighted by Glassnode data. The realized price represents the average cost basis of all BTC and was last visited, only briefly, in March 2020.
The realized price has historically been strong support for bitcoin, and a rebound from the same could lead to short-term gains. However, analysts believe that the price isn’t expected to see parabolic gains soon.
Bitcoin’s price fell to as low as $25,800 over the last week, but pressure from bulls ensured a short-term recovery back to the sub-$29,000 zone. At the time of writing, the top cryptocurrency traded at $30,910, noting a 4.77% price rise over the last day.
BTC’s recovery above the $28,200 support on May 13 pushed the top asset towards higher highs in the following couple of days. If bulls can ride out the sell-side pressure in the coming days and BTC’s price can settle above the $32,500 mark, the same can provide positive market momentum.
XRP rallied by close to 9% on Friday, recovering from a 7.44% loss the altcoin recorded on Thursday. After crossing the $0.380 mark, the altcoin saw considerable upside, which came amidst Friday’s SEC v Ripple court date, as reported by FXEmpire earlier.
While long-term key technical indicators for XRP continued to remain bearish, at the time of writing, XRP’s price rallied on the back of BTC’s freshly gained momentum. Additionally, the progress in the SEC vs Ripple case has fueled a bullish sentiment among XRP investors.
At press time, XRP traded at $0.4409, noting 4.20% daily gains, however, the altcoin was still down by 23.27% on the weekly charts.
XRP’s recovery above the $0.45 mark can further aid bullish momentum. In the short term, if bulls can push prices above the $0.48 mark, prices can see upside. However, volatility would continue to rule the market.
Amid the larger market bounce, Solana gained over 18% in market value in the last 24 hours and traded at $58.68. SOL experienced a brutal crash as its price hit a low of $37 on May 12.
Over the last four days, SOL’s price has made higher lows presenting a bullish trajectory; however, trade volumes maintained low as investors remained cautious. The altcoin’s recovery above the $44 mark aided the positive price momentum.
Going forward, a recovery above the $62 mark would be key to SOL’s price recovery.
The sudden in buying pressure helped SOL regain the psychological $50 level as support. Buying pressure from bulls as the market embarks on a short-term recovery could push the token higher as technical indicators turn bullish.
Privacy tokens have often turned bullish in response to larger market sell-offs. Monero, at press time, traded at $171.28 noting 11.25% daily gains, however, it was still down by 21.33% on the weekly chart.
XMR has held the psychological support at $145, which aided the coin’s rise over the last couple of days. While RSI for XMR had recovered from the oversold zone and highlighted that buyers were gaining momentum.
Even though RSI’s uptrend reinforced positive market momentum, sellers still dominated buyers. In the short term, a recovery above the $200 resistance would be crucial for XMR. If the market turns bearish again, XMR could fall back to the $145 zone.
Defi token MKR was one of the top performing altcoins last week, as highlighted in a FXEmpire article. Amid high sell pressure in the larger market Maker Protocol’s MKR token recovered from the last week’s losses as the price pushed above the $1500 mark.
At press time, MKR traded at $1,550.23, noting 0.65% daily losses. MKR had reversed the losses made in the first week of May. With MKR’s recovery above the $1500 mark, sell-side pressure could ease in, giving way to short-term losses.
In the short term, if bulls can push MKR’s price above the $1650 level, the same could aid MKR’s positive price momentum. However, a bearish downturn could push the price back to the lower $1400 support.
With BTC’s price above the $30,000 mark, market confidence seemed to return.
Most of the top altcoins were trading in the green on a renewed market momentum.
The recent short-term gains seem to be temporary as the market could see further downside.
Most cryptocurrencies traded higher as Sunday approached with a wind of fresh air for crypto investors. While it wasn’t a full-blown recovery, markets headed towards gains, as bearish sentiment waned.
Over the last six months, the cryptocurrency market reached as high as $3 trillion and dropped to as low as $1.2 trillion. In the last half a year, the cryptocurrency market cap has lost $1.9 trillion; these losses are bigger than those witnessed during the 2007’s subprime mortgage market crisis.
The high losses and higher trading volumes have propelled fears of crypto market risk spilling over across traditional markets hurting stocks and bonds. The same also indicates the increased correlation in the high-risk and traditional finance markets.
A return of short-term buyers, as the cryptocurrency market cap inches close to the $1.5 trillion mark, shows optimism in the market. However, the return of traders isn’t indicative of larger market recovery as technicals present limited upside in the short term.
Nonetheless, with the global crypto market cap returning to the $1.30 trillion mark at press time, noting a 4.73% increase over the last day, the same pointed towards a short-term recovery.
So, let us take a quick look at how the market reacted over the last week and where it could go, moving forward.
Bitcoin staging a recovery?
The bitcoin (BTC) price dropped to the lows last seen in late 2020, amid the COVID-19 crisis. Recently, after a storm of Federal Reserve interest rate hikes, the scaling back of its massive $9 trillion balance sheet, and a huge $18 billion stablecoin meltdown, the same brought down the larger crypto market cap and the top crypto asset.
Bitcoin’s price fell to as low as $25,800, but pressure from bulls ensured a short-term recovery back to the sub-$29,000 zone. At the time of writing, the top cryptocurrency, traded at $30,284, noting a 4.11% price rise, over the last day.
While the BTC gains instilled some confidence in the market participants, analysts believed that market gains wouldn’t sustain for long with volatility still high. Data analytics site, Glassnode, tweeted that Bitcoin dropped below $30,000, as inflation fears and the Fed’s readiness for “short-term pain” rattled markets.
Notably, BTC was down by 58% from its all-time high price, while SPX was down by 18%, NDX was down by 30%, and US bonds have fallen by 15% from their ATH.
#Bitcoin dropped below $30k as inflation fears and the Fed’s readiness for “short-term pain” rattled markets.
Drawdowns from ATH – $BTC -58% – $SPX -18% – $NDX -30% – US bonds -15%
Despite the larger bearish blues, some altcoins took advantage of BTC’s short-term gains as their prices took a bullish turn. At the time of writing, with BTC back above the psychological $30,000 mark, most of the top altcoins like ETH, BNB, XRP, ADA, SOL, and AVAX were trading in the green on their daily charts.
Ethereum traded at $2,079.78, noting 5.61% daily gains, while BNB was up by almost 9%, in the last 24-hours. Fantom’s price performance has also been decent in the last week. FTM traded at $0.3654, noting 19.87% gains, over the last day.
Privacy tokens like ZEC and XMR were up by 21.32% and 17% in the last 24-hours. Of late, privacy tokens have often charted bullish price trajectories when the larger crypto market is down.
That said, DeFi token MKR was one of the top gainers of the last week. At the time of writing, MKR traded at $1,575.27, noting 10.28% daily and 30.90% weekly gains. MKR had reversed the losses made in the first week of May.
Top news from the crypto verse
A positive development in the crypto space came from Nigeria, where the nation’s Securities and Exchange Commission has released new rules to guide the issuance, custody, and exchange of digital assets and classify them as securities.
In other news, Chile was still considering whether to move forward with a central bank digital currency (CBDC), despite the earlier disclosed plans to have a proposal ready by early this year.
That said, the Terra ecosystem fall still stood as one of the top stories, in the last week. Earlier today, an FXEmpire article highlighted how Binance’s Changpeng “CZ” Zhao cleared the exchange’s name as rumors about Binance investing in Terra surfaced on crypto Twitter. CZ also questioned the idea of hard forking the Terra blockchain to revive the LUNA and UST ecosystems.
Bitcoin’s price faced strong resistance at the $31,000, while altcoins made attempts to recover.
BTC’s recovery above the $27,000 mark pushed certain altcoins towards a short-term recovery.
BNB, TRX, MANA, and MKR were among the coins that got a decent upswing.
Bitcoin’s price attempted recovery above the $30,000 resistance level, but after facing rejection ahead of the $31,000 mark, its price oscillated close to $28,983 at the time of writing. BTC’s price jumped by almost 7% in a day, cutting its weekly losses to less than 18%, in tandem altcoins saw a short-term price push.
The world’s largest cryptocurrency by market cap was still down by over 50% from its all-time high made in November 2021 at around $69,000. After BTC’s recent short-term uptrend, most of the major altcoins faced the uphill task of recovering above their key support/resistance levels.
In addition to that, two ethereum (ETH)-based altcoins called Chain’s XCN and FLEX Coin’s FLEX token charted notable weekly gains despite the widespread crypto meltdown.
The native token of the blockchain technology company chain, XCN, rose by more than 30% in price over the last seven days from a low of $0.071 to a high of $0.091.
On the other hand, Hong Kong-based futures exchange platform’s native token FLEX jumped by over 33% in the last week from a low of $3.72 to a high of $4.95.
Furthermore, many altcoins like DOT, AVAX, SHIB, MATIC, FTT, FTM, and APE were briefly in the green zone. Apecoin’s APE token rallied by 46%, breaking above the $9.00 level, while FTM, MANA, and GALA saw close to 50% gains over the last week.
BNB, TRX, MANA, and MKR see short-term price gains
Binance Coin’s BNB saw a bounce from the $200 support zone, rising to as high as $300 on May 13. However, the fifth-ranked coin by mark cap faced considerable resistance at the $315 mark and after making a high of $313 on May 13, it made its way back to the $250 level.
If bulls fail to ride the sell-side pressure, the price might correct lower, but dips could be limited below the $250 level. At the time of writing, BTC’s price pullback to the $28,900 mark brought BNB’s price down to the $279.36 level.
BNB’s price was down by 9.35% in the last 24-hours and almost 25.62% over the previous week.
Apart from BNB, Tron’s TRX token maintained its price above the key $0.067 mark despite the market-wide sell-off. TRX’s price made it close to the $0.084 mark but faced resistance at the higher level, which led to a pullback towards the $0.067 mark.
While TRX’s price maintained its rangebound movement between the $0.067 and $0.084 mark, its price didn’t fall below the key support zone at the $0.065 mark which was noteworthy.
Defi token MKR was another coin that performed well amid high sell pressure in the larger market. On the other hand, Decentraland’s MANA gained up to 50% as the market saw a short-term recovery.
Maker Protocol’s MKR token recovered from the last week’s losses as the price pushed above the $1500 mark. At press time, MKR traded at $1,456.29, noting 1.71% daily and 9.55% weekly gains.
On a weekly chart, MKR’s price made a higher high for the last four days.
At the time of writing, data from CoinMarketCap highlighted that MANA was the top gainer in the top 100 assets by market cap.
The 33rd ranked coin by market cap traded at $1.14, noting 4.19% daily gains. Over the last two days, MANA’s price recovery above the $1.13 mark has instilled positive momentum for the coin.
If bulls push MANA above the $1.15 mark, further gains could be expected in the near term for the alt.
So, what do altcoins need to recover?
Most of the top altcoins have a high BTC correlation during bear markets. The top coin’s price movement and volatility provide ample opportunities for alts to rally.
Crypto analyst Rekt Capital notes that BTC would need a monthly close above the $35,000 mark for a bullish higher timeframe close and to keep losses at bay. While a monthly close above the $35,000 mark may seem unachievable, if volatility and buying pressure takes on the same could pan out in favor of the bulls.
BTC’s monthly close above the key resistance at $35,000 could aid positive momentum to altcoin trajectories. In the last week, BTC’s price has made some decent progress recovering above the range low of around $28,600, but a push from bulls above the $30,000 mark would be needed for altcoins to move upwards.
#BTC has made some progress in recovering the Range Low (green), specifically ~$28600
For $BTC to develop some semblance of bullish momentum, it needs to keep ~$28600 as support for price to challenge ~$32000 (orange)
Analyst Rekt Capital also highlighted that for ‘BTC to develop some semblance of bullish momentum, it needs to keep $28600 as support for price to challenge $32000.’ However, a BTC weekly close below the $28600 mark would be bearish.
Reports were doing the rounds on Thursday that Grayscale has met with the US SEC privately.
The crypto market decline has continued on Thursday as stablecoin woes and macro worries weigh on sentiment.
Bitcoin (BTC) hit its lowest level since December 2020, while stablecoin troubles seem to have spread to USDT.
Today’s daily Crypto Brew takes a deep dive into the latest news, themes, and developments driving crypto markets.
The total market capitalization of cryptocurrencies continued to fall on Thursday, at one point falling below $1.1 trillion for the first time since February 2021, but more recently stabilizing above $1.2 trillion. That still leaves losses at about 3% (over $40 billion) on the day and close to 21% (around $330 billion) on the week, at the time of writing.
According to CoinGlass, cryptocurrency future positions worth $1.26 billion were liquidated in the last 24 hours. Most of these liquidations continue to be of long positions as the crypto market declines.
Long liquidations on Wednesday were just shy of $700 million, not far below Monday’s more than three-month high of nearly $800 million.
State of the market
Cryptocurrency markets have continued to reel on Thursday as the collapse of Terra’s stablecoin UST triggers contagion across other stablecoin markets, with Tether’s USDT now looking to be in trouble. Stablecoin woes come against a still very unfavorable macro backdrop for the crypto market, with US stocks down sharply in wake of hotter than expected US inflation data.
April US Consumer Price Inflation (CPI) data released on Wednesday revealed a smaller than expected drop in the YoY rate of headline inflation (to 8.3% from 8.5% in March rather than the expected drop to 8.1%). Meanwhile, core price pressures were also hotter than expected, with the MoM jump in core prices exceeding expectations at 0.6% versus an expected rise to 0.4% from 0.3% in March.
Heading into the data release, traders had been hoping that signs of easing price pressures would facilitate a winding down of hawkish Fed bets. This could have given stocks and crypto a short-term boost.
But as it played out, the opposite happened and the Fed will look upon the latest CPI data with concern.
The latest data likely reaffirms their conviction to tighten monetary policy “expeditiously” back to so-called “neutral” (rates around 2.5%) by the end of the year and perhaps much higher in 2023, despite a slowing global growth impulse, which has been exacerbated in recent weeks by lockdowns in China and the Russo-Ukraine war.
It was thus not surprising to see US equities extend their recent run of losses on Wednesday, led unsurprisingly by the high-interest rate-allergic tech sector. The Nasdaq 100, with which the cryptocurrency market has had a close correlation in recent months fell 3.0% to below the 12,000 for the first time since November 2020.
Nasdaq 100 index future suggests the index is set to open Thursday’s session a further more than 1.0% lower in the 11,800s, meaning it is now down roughly 30% versus its record highs back in November 2021.
Bitcoin was last trading down about 2% in the $28,500 area, having recovered from an earlier dip as lower as the mid-$25,000s, giving it a market cap of just over $540 billion, near its lowest since early 2021.
On the week, BTC/USD is down about 16.5% and, at current levels, the cryptocurrency trades lower by about 60% versus its all-time high printed last November just above $69,000.
The percentage of bitcoin addresses in-profit dropped to a two-year low of 60.4% on Thursday, Glassnode data showed.
Alternative.me’s Fear & Greed Index for BTC showed that markets remain in a state of extreme fear with a score of 12. The index hit 10 earlier in the week, not far above the all-time worst score of 5 hit back in August 2019.
Turning to etheruem (ETH), ETH/USD was last trading lower by close to 5.5% in the mid-$1,900s. The cryptocurrency has recovered from an earlier crash as low as the $1,700s for the first time since June 2021, where it tested a triple bottom in the $1,750 area from the middle quarters of 2021.
At current levels just under $2,000, the market cap of the world’s second-largest cryptocurrency stands at just above $230 billion and, like bitcoin, is around 60% down versus its record highs from last November.
Other notable layer-1 blockchain tokens in the top ten cryptocurrencies by market cap took a beating on Thursday.
Binance’s BNB is down around 10.4% in the last 24 hours, according to CoinMarketCap, at the time of writing.
Ripple’s XRP last down about 24% in the last 24 hours.
Cardano’s ADA is around 25% lower in the last 24 hours, whilst Solana’s SOL has shed about 28% of its value over the same time period.
Popular meme tokens Dogecoin (DOGE) and Shiba Inu (SHIB) were both down in the region of 30% over the last 24 hours. DOGE’s market cap fell under $10 billion for the first time since April 2021.
LUNA, the native token on the Terra blockchain, was last changing hands on exchanges for under 5 cents, meaning it has lost about 99.9% of its value from its record highs printed at the beginning of April near $120 per token since the de-pegging of Terra’s flagship stablecoin UST.
Stablecoin trouble that originated over the weekend just gone with the de-pegging and subsequent collapse of Terra’s algorithmic stablecoin UST (which has resulted in the collapse of the Terra blockchain’s native LUNA token) has spread to Tether’s stablecoin USDT.
USDT/USD went as low as $0.94 on Thursday, according to Coinbase data cited on TradingView. It now trades closer to $0.99 again.
USDT is allegedly backed 1:1 with actual US dollars of liquid equivalents (short-term US debt instruments), according to Tether. But Tether has come under scrutiny and criticism in the past amid claims that USDT isn’t actually backed 1:1.
UST, meanwhile, continues to trade like an illiquid altcoin and continues to swing all over the place. It was last trading around $0.50, despite Terraform Labs announcing further measures to save the peg on Twitter.
Citadel Securities, BlackRock, and Gemini have all criticized social media-based conspiracy theories alleging that they played some part in the UST collapse.
For now, USD Coin (USDC), Binance USD (BUSD,) and Dai (DAI), the next major USD stablecoins, all continue to trade comfortably in line with their 1:1 pegs to the US dollar.
Flows, deals, and transactions
According to Glassnode, $3.3 billion in bitcoin was sent to exchange wallets on Wednesday versus $3.2 billion out, amounting to a net inflow of around $49.9 million.
That coincided with the 7-day moving average of Exchange Inflow Volume reaching an 11-month high of 3,372.517 bitcoins (per day) and bitcoin Balance on Exchanges reaching a 1-month high of 2,542,255.466 bitcoins on Thursday, according to Glassnode.
Traders moving bitcoin to exchanges in a higher number is usually a sign of an elevated intent to sell in the market.
Meanwhile, crypto investors reportedly moved $1.6 billion into exchanges on Wednesday versus $1.6 billion out, resulting in a net inflow to exchanges of just over $30 million.
According to CoinGecko, the market cap of DeFi tokens fell to $48.6 billion on Thursday. That marks a more than 57.5% collapse in just seven days and is mostly due to the demise of LUNA, the former largest of the DeFi tokens.
The total value locked (TVL) on all DeFi platforms continued its recent collapse and was last at just over $100 billion, down over 25% in the last 24 hours alone, data on DeFi Llama showed. Much of the recent collapse has been driven by the downfall of the Terra ecosystem, which now has a TVL of only about $2.0 billion versus close to $22.0 billion just one week ago.
Of the largest ten DeFi tokens, Lido Staked ether’s STETH (around -20% in the last 24 hours)
They are all performing poorly in tandem with the broader crypto market drop, at the time of writing.
DeFi stablecoins including Dai’s DAI, Frax’s FRAX, and Magic Internet Money’s MIM are all remaining broadly stable close to $1.0, as is their intended purpose.
Crypto regulation landscape
Australia’s first-ever bitcoin and ethereum Exchange Traded Funds (ETF) went live on Thursday, launched by ETF Securities and Cosmos Asset Management. Trading surpassed A$ 1 million in the first two hours, which market commentators said marked a strong start given broader market turmoil.
“ETF Securities and Cosmos Asset Management’s cryptocurrency launch may go down in history books and put Australia’s ETF market in the running,” analysts at Bloomberg Intelligence wrote. Australia’s crypto market could hit $1 billion by the end of the year, with the country potentially acting as the Asia-Pacific’s gateway to crypto ETFs, they noted.
With Australia joining ranks with Canada as one of the few major developed economies where cryptocurrency ETFs have received approval, pressure on the US Securities & Exchange Commission to allow a US-based crypto ETF builds further.
Reports were doing the rounds on Thursday that Grayscale has met with the US SEC privately as it pushes for regulator approval of its plan to convert its Bitcoin Trust into an ETF.
Speaking of the SEC, two former SEC lawyers told The Block on Wednesday that the US regulator is likely already investigating what happened to UST over the weekend.
The SEC had already taken an interest in the Terra ecosystem, one of the lawyers said, noting the Mirror protocol that enabled crypto investors to buy digital assets whose value remains closely linked to traditional financial assets, though remains outside the regulatory purview.
Elsewhere, the High People’s Court in Shanghai declared bitcoin to be a legal form of virtual property that will be protected under Chinese law. This is despite the fact that cryptocurrency trading is banned in China.
During the quarterly rebalance, Grayscale made some changes to all its funds.
Avalanche and Polkadot were added to the Digital Large Cap Fund.
SushiSwap and Synthetix were cut out of the DeFi Fund.
In a press release today, the world’s biggest crypto asset manager Grayscale Investments announced the quarterly rebalance of their portfolios. For those unversed in this, Grayscale has multiple investment funds which track multiple digital assets within them.
And every three months, these funds are analyzed and based on the investors’ reviews, changes are made to them.
Grayscale Makes New Changes
Now that the second quarter of the year has begun, Grayscale has adjusted its portfolios by removing some assets while also adding some or simply redistributing the money distributed amongst them.
The first was the Digital Large Cap fund (GDLC) which witnessed addition instead of subtraction this quarter.
After adding Solana and Uniswap last quarter, a substantial amount of money was removed from the existing assets to dedicate it to buying two new assets for the fund – Avalanche and Polkadot.
The second significant change came to the Grayscale DeFi Fund (DeFi Fund), which during this rebalance, lost SushiSwap and Synthetix.
Despite the latter performing exceptionally well over the last couple of weeks in terms of price, Grayscale decided to remove it. Both the assets combined held 6.24% weighting in the DeFi Fund, most of which went to Curve, whose weighting rose from 10.63% to 17.56%.
However, a reduction in asset distribution doesn’t always mean that money is being pulled out of the assets. Grayscale explained this by saying,
“Neither the Digital Large Cap Fund, the DeFi Fund, nor the GSCPxE Fund generate any income, and all regularly distribute Fund Components to pay for ongoing expenses. Therefore, the amount of Fund Components represented by shares of each fund gradually decreases over time.”
The DeFi Pulse Index
Similar to how the Grayscale DeFi Fund works, another DeFi asset tracking fund from Scalara, the DeFi Pulse Index (DPI), is also looking at a rebalance today. While the exact details are yet to be revealed, the elimination of Instadapp from the portfolio has been confirmed.
With 14 DeFi assets under its hood, led by Uniswap, AAVE, and MakerDAO, DPI has performed significantly better this month, rising by 31.43%.
Thus, while GBTC, ETFs, and other spot investment vehicles will have a higher preference, the rise of DeFi funds can also see investors diversifying their money into these indexes.
AVAX rallied 15% and is currently attempting a crucial upside break.
After a clear move above $40,000, bitcoin price started a fresh increase. There was a clear break above the $40,800 resistance level.
The price even broke the $41,000 resistance and settled above the 21 simple moving average (H1). It is now attempting an upside break above the $41,250 and $41,450 resistance levels. If there is a clear move above $41,450, the price might surge further.
The next key resistance is near the $42,200 level. If there is no upside break, the price might decline towards the $40,300 level and a connecting bullish trend line on the hourly chart.
ETH also followed a similar pattern and started a fresh increase above the $2,720 level. The price settled above the $2,780 level and the 21 simple moving average (H1).
There was a clear move above a key bearish trend line with resistance near $2,790 on the hourly chart during the increase. The bulls even pushed the price above the $2,800 level. ETH is still rising and might climb higher towards the $2,880 level.
If the bulls remain in action, the price could surge towards the $2,920 resistance zone. Conversely, the price might correct gains and test the $2,780 support zone. A downside break below the $2,780 support could push the price lower towards $2,720.
AVAX formed a base above the $65.00 level after a sharp decline. The price started a decent increase above the $70.00 resistance zone.
There was a clear move above the $75.00 level and the 21-day simple moving average. The bulls pushed the price above the 23.6% Fib retracement level of the key decline from the $98.50 swing high to $65.50 swing low.
The price is now reaching near a crucial bearish trend line with resistance near $82.00 on the daily chart. A clear move above the trend line resistance could further push the price above $85.00.
The next hurdle is near the trend line at $92.00, above which the price might rise towards the $100.00 level. If not, the price might correct gains and test the $75.00 support.
ADA, BNB, and DOT price
Cardano (ADA) is up 5%, and there was a move above the $0.850 level. The next stop is near $0.880, above which the price might rise towards the $0.900 level.
Binance Coin (BNB) is moving higher towards the $392 resistance. The next major resistance is near the $395 level. If the bulls remain in control, the price could even surge above $400.
Polkadot (DOT) gained 4% and broke the $18.50 level. The next key hurdle is near the $19.20 level, above which the price might rise to $20.00.
A few trending coins are MKR, CAKE, and CELO. Out of these, CAKE is up 25%, and there was a move above the $6.50 level.
Witnessing one of the biggest exploits of the year, the PancakeBunny Finance as well as the Qubit Finance development team announced their decision to turn all control to the community. The losses that ensued owing to the exploit also led to Team Mound taking a severe hit.
Qubit, PancakeBunny Goes DAO
About two weeks ago FXEmpire reported on the Qubit exploit which enabled the hacker to mint unlimited xETH to borrow on the Binance Smart Chain.
Before the team could manage to prevent further exploitation of the pool funds, the hacker managed to take as much as 206,809 BNB which translates to about $86 million.
Although Qubit Finance did offer a bounty to the hacker, clearly the hacker did not seem to be interested in giving up over $80 million.
As a result the team today announced that the development team will no longer be leading the team. As soon as the protocol’s governance is changed to DAO, the community will be in control of authorizing and deciding on the contract upgrades, fee structure alteration, and other decisions pertaining to the protocol.
“We regret to inform you that we are unable to carry on the proposed roadmap…Due to this terrible incident, it became impossible to sustain the scaled development team.”
However, the team will be making some changes before the protocol transitions into a DAO. first of which is ceasing BUNNY emissions where the vaults on the PancakeBunny will no longer mint its tokens. Secondly, the team discontinued a majority of its fees owing to restructuring revision.
And the team also stated that they will be launching new markets on Qubit Finance, removing the hacked markets in the process.
In a few final words, the team announced:
“All of the team’s tokens will be locked in the smart contracts owned by our community and the total profit generated by this contract will move to the compensation pool. This means that the entire protocol fees and reserves will be distributed to existing holders and relevant users to be compensated, and any further profits will no longer be shared with the team.”
Others Begin Prevention
While Qubit and Bunny team is dealing with the damages, other protocols such as MakerDAO are finding ingenious ways to prevent such a similar situation.
The MAKER team recently announced a $10 million bounty for ethical hackers and cybersecurity specialists who can point out actual security threats to the protocol.
Taking the market by surprise, MakerDAO, the decentralized organization (DAO) behind the DAI stablecoin, recently announced that it will start offering a maximum of $10 million bounty to ethical hackers and cybersecurity specialists who are able to point out legitimate security threats in its smart contracts.
The Larger Bug Bounty
MakerDAO is set to roll out a bug bounty program with Immunefi, the leading crypto security services platform, promising a record payout of $10 million to whitehat hackers. The platform plans to front-run attacks on its smart contracts is the largest ever bounty with a maximum single payout of $10 million in DAI.
With that MakerDAO’s bug bounty program claims to be not only the largest hosted on Immunefi but also the biggest in the entire tech space.
Notably, Immunefi’s website claims the bugs found have averted up to $20 billion in damages from hacks.
For now, as per reports by Immunefi, Whitehat hackers stand to gain payouts ranging from $1,000 for low-level vulnerabilities going up to a maximum of $10 million for critical issues found in Maker’s smart contracts and apps. The payouts are set to be made in DAI stablecoins.
Notably, the next largest bug bounty on Immunefi is a $3.3 million bounty from Olympus DAO, which was launched in January. The platform’s largest payout of $2 million was awarded to a security researcher who found a critical vulnerability in the Polygon Plasma Bridge last year.
Can This Push Maker Price?
MakerDAO’s token MKR has often reacted well to larger market runs as well as ecosystem-centric developments.
Yet again, after MakerDAO was in news due to its latest bug bounty program, there was an anticipation of a price rise for MKR among holders. However, due to Bitcoin’s price rejection at the $44.5K mark, the larger market’s trajectory turned southward.
MKR much like most of the altcoins noted over 5% daily losses and close to 10% drop in price by the week. As the token traded at $2,113, Maker’s larger market dependence in terms of price could be seen.
Notably, MKR could see good long-term growth with developer incentivization programs like the bug bounty recently announced. However, in the short term, the MKR price trajectory could be dependent on BTC and the larger marker.
With the market on the cusp of recovery as Bitcoin finally established itself above the $36,000 mark some altcoins seemed to be gaining momentum. Maker (MKR), the second biggest DeFi protocol in the crypto market had a lot of eyes on it. The altcoin’s over 5% gains at the time of writing made the market participants optimistic about Maker and DeFi tokens in general, especially after the recent choppy price action in the larger market.
Maker Posting Gains
Over the last week, Maker tested the lower $1614 mark which was last seen in February 2021. In May last year, MKR made a new all-time high of $6,247.16, but the asset was down 69.49% from its ATH at press time.
While the token’s gains in the first two quarters of 2021 were commendable the last week’s losses have put close to 36% of Maker HODLers in loss or ‘Out of the Money’ as per data from Into The Block. That said, despite MKR’s close to 15% gains in the last two days, the larger sentiment for the coin was still largely bearish.
DeFi Tokens to Fuel Recovery?
DeFi tokens like Fantom, Aave, The Graph, and Maker were the first to note recovery as BTC charted close to 2% gains. Notably, Fantom was one of the top gainers in the top 100 coins by market cap and noted over 10% gains. On the other hand, AAVE and The Graph noted 2% and 3.8% gains and Loopring was up 12.36% on the daily chart.
That said, the total value locked in DeFi protocols had fallen by 2.8% and stood at $195.78 billion at press time. Additionally, looking at MKR’s TVL in DeFi, the same had dropped to $15.08 billion from $17.17 billion a week ago. Notably, MKR’s TVL in DeFi reached an all-time high of $19.9 billion on December 1 when MKR was valued at $3030.
While on the short-term MKR’s RSI had recovered alongside price, another price pullback can be expected if Bitcoin makes a u-turn shortly.
For Maker, the next lower price level remains at the $1300 mark while the next bullish price levels would be at the crucial resistances established at the $2240 and $2500 mark. At press time, MKR oscillated at the $1,905.76 mark noting just over 5% daily gains.
DeFi has risen into one of the hottest segments in the cryptocurrency industry, with more than $260 billion in total value locked (TVL) currently. The DeFi market is still largely unregulated and has gained the reputation as the Wild West of crypto. A new research report by crypto risk management firm Elliptic illustrates some of the pitfalls associated with the market.
Losses stemming from DeFi-related fraud and theft total $10.5 billion year-to-date. This amount is up an eye-popping 600% vs. 2020 levels of $1.5 billion. Last year, DeFi ended the year with $21.1 billion in TVL, according to DeFi Llama.
In a more top level view, DeFi market participants lost slightly more than $12 billion so far this year overall due to “the malicious exploitation of flaws” across Dapps including “decentralized exchanges (DEXs), lending protocols and asset management offerings,” according to the announcement.
Elliptic Chief Scientist Tom Robinson stated,
“The DeFi ecosystem is an incredibly exciting and fast-moving space, with financial services innovation happening at light speed. This is attracting large amounts of capital to projects that are not always robust or well-tested. Criminal actors have seen the opportunity to exploit this.”
According to the report, the culprits have been flaws in Dapps, giving nefarious actors the opportunity to exploit bugs. While decentralized apps are designed to be trustless and not require the intervention of any centralized third party, this does little good when the code has vulnerabilities.
Flawed Dapps represented $10.8 billion of the loss tally. In addition, rug pulls, or exit scams, have also been on the rise in DeFi and have tacked on another $1 billion to this year’s losses.
Despite the risks, DeFi continues to attract top-tier developers and high-net-worth investors. DeFi has already disrupted the traditional financial system, giving market participants the opportunity to generate returns from activities such as lending and borrowing, staking and yield farming.
The Bitwise management team forecasts that DeFi has only scratched the surface. They say DeFi could balloon into a $15 trillion segment in the next five-15 years if it follows in the footsteps of other disruptive technologies in which the Teslas and Amazons of the world operate.
Ethereum, which is the most popular platform for DeFi projects, currently boasts $172.5 billion in TVL and rising. The Ethereum price has been on a tear in 2021 alongside the rise of DeFi.
The Ethereum blockchain is home to popular DeFi projects such as MakerDAO for crypto lending and borrowing, exchange liquidity pool Curve Finance, and Compound, to name a few.
The cryptocurrency space has grown to become a $3 trillion industry. Over the past decade, there have been numerous innovations within the cryptocurrency space. One of the most recent innovations is the decentralized finance (DeFi) space.
DeFi is one of the fastest-growing sectors within the cryptocurrency space. It offers numerous services to cryptocurrency investors and other market players. Due to its importance, this post will touch on an aspect of DeFi, which is lending.
What is DeFi?
DeFi can be defined in simple terms as decentralized finance. This is an ecosystem of financial applications built on top of blockchain technology. Unlike the regular financial ecosystem, the DeFi space operates without any third part of central authority.
Instead, DeFi relies on a peer-to-peer network to establish decentralized applications that would allow people to connect and manage their assets regardless of their location or status. DeFi aims to ensure people gain access to open-source, transparent and permissionless financial services from every part of the world.
The decentralized finance ecosystem is built on smart contracts. Smart contracts are self-executing and don’t require a third-party intermediary. DeFi started on the Ethereum network. Hence, it is not a surprise that most of the DeFi protocols are built on the Ethereum blockchain.
Understanding DeFi Lending
DeFi lending occurs thanks to the lending platforms or protocols. These platforms offer cryptocurrency loans in a trustless manner, allowing the holders to stake the coins they have in the DeFi lending platforms for lending purposes.
On the DeFi platform, a borrower can take a loan, allowing the lender to earn interests once the loan is returned. The lending process is executed from the start till the finish without intermediaries.
A coin holder sends the tokens they intend to lend into a pool using a smart contract. Once the coins are sent to a smart contract, they become available to other users to borrow. Afterward, the smart contract issues tokens (usually, the platform’s native token) that are doled out automatically to the lender. The tokens can be redeemed at a later stage in addition to the underlying assets that were sent to the smart contract.
Virtually all the loans issued via the native tokens are collateralized. This means that users who wish to borrow funds will need to provide a guarantee. However, unlike the centralized financial system, the guarantee in the DeFi space is in the form of cryptocurrencies that are worth more than the actual loan itself.
On paper, this idea might seem absurd as the borrower could potentially sell their assets in the first place to generate the money. However, there are numerous reasons why DeFi borrowing makes sense.
For starters, the users might require funds to take care of unforeseen expenses they may have incurred and don’t intend to sell their holdings as they believe the assets are due to an increase in value in the future. Furthermore, by borrowing money via DeFi protocols, users can avoid or delay paying capital gains taxes on their cryptocurrencies. Also, individuals can use the funds they borrow from the DeFi protocols to increase their leverage on some trading positions.
What are the Popular DeFi Lending and Borrowing Protocols?
Maker is one of the leading and unique DeFi crypto lending platforms. It allows users to borrow money via its DAI tokens. DAI is a stablecoin whose value is pegged to the US Dollar. Using the Maker protocol is available to anyone. Users can open a vault, lock collateral like ETH or other cryptocurrencies and generate DAI as a debt against the locked collateral.
The Maker protocol encourages users to take part in operational earnings via governance fees, acting as interest rates for the platform. MKR is the native token of the Maker protocol, and its holders serve as the last line of defense in the event of a black swan. As soon as the collateral value starts to decrease, MKR is minted and sold in an open market to raise more collateral. Hence, diluting MKR holders.
Another leading DeFi lending protocol is Aave. This is an open-source platform and one of the most popular DeFi lending protocols in the crypto space. Aave is a non-custodial liquidity platform for earning interests on deposit and borrowing assets. It allows the lenders to deposit their cryptocurrencies in a pool and receive an equivalent amount of aTokens, its native token. The protocol algorithmically adjusts interest rates based on demand and supply, indicating that the more a user holds aTokens, the higher the interest amount.
Another popular DeFi lending protocol is Compound. This is an algorithmic and autonomous money market protocol designed to unlock numerous open financial applications. Compound allows users to deposit cryptos, earn interests and borrow other cryptocurrency assets against them. By using smart contracts, Compound automates the management and storage of capital on the protocol.
As a permissionless protocol, anyone with a cryptocurrency wallet and an internet connection can interact with Compound and earn interest. Metamask is one of the wallets that support the Compound DeFi protocol. The Compound protocol supports the lending and borrowing of numerous assets, including DAI, ETH, WBTC, REP, BAT, USDC, USDT and ZRX.