3 Key Reasons Why DeFi Giant Yearn Finance (YFI) Rallied to $12,800

https://cointelegraph.com/news/3-key-reasons-why-defi-giant-yearn-finance-yfi-rallied-to-12-800

In the past week Yearn Finance (YFI) rallied 330% to a new high at $12,800 but what’s behind this impressive rally?

Yearn Finance (YFI) launched just a month ago and since then the yield aggregating platform’s total value locked has climbed to $611 million.

In the last three days, YFI price climbed to $12,800, a nearly 330% rally since the price bottomed at $3,005 on Aug. 13.

Three key factors appear to be behind YFI’s recent rally: the release of yinsure.finance, hype fueled by industry executives, and the continued explosive growth of the decentralized finance sector.

YFI/USDT 4-hour chart. Source: TradingView.com

YFI/USDT 4-hour chart. Source: TradingView.com

Yinsure.finance launches

On Aug. 17, the development team behind Yearn Finance announced the release of a tokenized insurance platform called yinsure.finance. Through insured vaults and claim governance, it creates an insurance service on top of the DeFi protocol. The developers said:

“Over the next few weeks we will systematically be releasing yinsure.finance, a prototype for a new kind of tokenized insurance. This post is a draft in detailing the architecture and how a decentralized insurance mechanism can be created.”

Venture capital investors suggested earlier in the month that insurance could become the next big category in the DeFi space.

Fred Ehrsam, the co-founder of the crypto fund Paradigm, said on-chain insurance to cover protocols and DAOs has the potential to evolve into a large market. Ehrsam said:

“Crypto-native insurance – on-chain insurance covering protocols and DAOs – has the potential to be the next big financial primitive in DeFi. The market size could be enormous and the initial wedge is credible… Whoever solves them can create one of the fundamental building blocks of DeFi, supporting billions in value today, and unlock broader use by increasing the amount of capital users, investors, and traders are willing to commit to the system.”

The entrance into a relatively new market in on-chain insurance by Yearn Finance is seemingly affecting the sentiment around YFI positively.

Industry executives are excited by YFI

The price of YFI declined substantially when Yam, an experimental DeFi protocol, got hit with a bug. Since then, YFI has recovered rapidly, gaining popularity among prominent industry executives.

Recently, BitMEX CEO Arthur Hayes has been exploring various DeFi protocols like Yam and Based, and Hayes excitedly tweeted:

“My metamask and I are busy this morning. Yearn, b*tches. Let’s go, YFI to da f*cking moon!”

DeFi sector growth is accelerating

The total value locked in the entire DeFi ecosystem surpassed $6.4 billion on Aug. 17 and Maker, Aave, and Curve Finance all surged past $1 billion in total value locked.

As mentioned earlier, the overall expansion of the DeFi market has led the total value locked in Yearn Finance to hit $600 million. The large amount of capital parked on Yearn Finance’s yield aggregating platform has been a major catalyst for YFI.

The confluence of a new product launch, the expanding DeFi market, and Yearn Finance’s rapidly-growing user base is seemingly pushing the price of YFI upwards.

Analyst Predicts DeFi Growth May Push Chainlink (LINK) Price to $32

https://cointelegraph.com/news/analyst-predicts-defi-growth-may-push-chainlink-link-price-to-32

Investment analyst Timothy Peterson says Chainlink (LINK) price might hit $32 by the end of 2020, but holding that level would be impossible.

Timothy Peterson, a chartered alternative investment analyst, says Chainlink (LINK) token could be valued at $32 by the end of 2020. Peterson’s comments come just days after LINK rallied by 88% over the course of two weeks.

The explosive growth of the Decentralized Finance (DeFi) market is thought to be one of the primary factors that spurred the demand for oracles, like Chainlink and Band Protocol (BAND) and data from Defi Pulse shows that since June, the total value locked in DeFi protocols surged by four-fold.

Chainlink has upside potential, but its growth is priced in

In the long-term, Peterson said Chainlink’s network growth and historical deviations hint at a more significant LINK rally but he cautioned that prices above $32 might not be sustainable. Peterson said:

“Did some quick analysis of Chainlink’s network growth rate and historical deviations in price put LINK at $32 by the end of the year, but that price would not be sustainable. Investors who buy at high levels risk losing 50% of their investment or more. Most growth priced in already.”

The DeFi market has expanded rapidly in recent months, causing most DeFi-related projects to rally. Despite this, there is a significant valuation gap between major and smaller networks.

As an example, Chainlink is currently valued at $4.475 billion. In contrast, Band Protocol, the second largest oracle project in the market, has a valuation of $257 million.

Venture capital investors, like Spartan Black’s co-founder Kelvin Koh, also have reflected on the valuation gap. Koh said that over time, competing platforms such as Band Protocol could begin to catch up.

Consequently, if the price of LINK rose above $30, it would place the network’s market capitalization over $10 billion. Whether Chainlink has sufficiently strong fundamentals, user activity, and other metrics to support a $10 billion market cap by the year’s end remains uncertain.

Sentiment remains positive

According to market data from Santiment, Chainlink and Band Protocol saw the highest level of social activity in the last several days. The researchers said:

“BAND and LINK have been mainstays atop our Emerging Trends platform the past couple days, which measures the highest percentage increase in social discourse related to crypto-assets and topics.”

The growing interest toward Chainlink and other oracle projects was also evident on Google Trends. But in comparison to major cryptocurrencies, like Bitcoin, there is less mainstream interest. 

Google Trends data comparison for Bitcoin and Chainlink

Google Trends data comparison for Bitcoin and Chainlink. Source: Google

Michael van de Poppe, a full-time trader at the Amsterdam Stock Exchange, suggested that LINK price could recover in the short term. Van de Poppe said:

“Level holds, great. Breaking $13-13.25, and I’ll think we’ll test the highs again.”

In the short-term, most major cryptocurrencies face the risk of a pullback following the abrupt decline in gold and silver price

As an example, Bitcoin price (BTC) dropped by more than 4% within 18 hours as its momentum declined and today many altcoins are also registering double-digit losses.

A surprisingly large portion of Ethereum’s user base comes from non-DeFi apps

https://cryptoslate.com/a-surprisingly-large-portion-of-ethereums-user-base-comes-from-non-defi-apps/

The Graph evaluated 1 billion queries on the Ethereum blockchain network in June. It discovered that 24 percent of user activity came from non-decentralized finance (DeFi) platforms.

A surprisingly high level of user activity on Ethereum came from entertainment-related applications. The usage of decentralized applications (DApps) related to gaming and collectibles rose by nearly two-fold.

Eva Beylin, a researcher at The Graph, wrote:

“Currently DeFi makes up 76% of total query volume (all-time), however there has been growing diversification in usage. Entertainment applications such as arts and collectibles and gaming now make up 12% of total volume, while they only made up 5% of volume 3 months ago. Software computing platforms, DAOs and marketplaces are also highly popular.”

According to Set Protocol’s marketing manager Anthony Sassano, the diversification of user activity presents an optimistic trend. It indicates that Ethereum is not concentrated in a single market in DeFi.

Why the diversification of user activity is an optimistic factor for long-term growth

In recent months, particularly since May, the DeFi sector recorded rapid growth. The total value locked on DeFi platforms surged, as investors increasingly started to use newly-emerging DeFi protocols.

The expansion of the DeFi market is positive, but it might also present a risk of market concentration. If DeFi accounts for most of Ethereum’s usage, and the sector slows down, it could result in slowing Ethereum growth.

In that regard, the diversity of user activity on the Ethereum blockchain network could result in more stability for long-term growth.

Sassano said:

“This speaks to the fact that Ethereum is not locked down to just one use-case or vertical. Just because most of the community and users are playing in the DeFi sandbox, it doesn’t mean that people can’t play in other sandboxes.”

ethereum defi
24% of user queries on the Ethereum blockchain are from non-DeFi apps. Source: The Daily Gwei

Ethereum is seeing explosive expansion

In early March, total daily queries on the Ethereum blockchain network were averaging below 15 million. By late June, the number of daily queries surpassed 60 million.

ethereum blockchain
Daily queries surpass 60 million, showing a four-fold increase since March. Source: The Graph

On-chain numbers suggest that the user activity on the Ethereum blockchain has grown by more than four-fold within four months.

The rapid growth of Ethereum is especially buoyant, considering the so-called “Black Thursday” briefly caused ETH drop by over 60 percent.

At the time, analysts were concerned that the fear surrounding cryptocurrencies might stall the trajectory of Ethereum.

As developers continued to launch new DApps and protocols throughout June, it catalyzed the recovery of Ethereum.

Beylin further explained:

“Growth in liquidity, trading volume and new token holders has spillover effects across dApps, like exchanges. This is the beauty of open and permissionless protocols, applications can build on the success of other applications.”

Overall, analysts remain positive that the rising demand for DeFi is supplemented with increasing usage of non-DeFi DApps.

The post A surprisingly large portion of Ethereum’s user base comes from non-DeFi apps appeared first on CryptoSlate.

Why Ethereum locked in DeFi plunged $600m after intense 57% ETH drop

https://cryptoslate.com/why-ethereum-locked-in-defi-plunged-600m-after-intense-57-eth-drop/

The total amount of Ethereum (ETH) locked in decentralized finance (DeFi) platforms plunged by more than $600 million since February 16. It coincided with a 57 percent drop in the price of ETH from $280 to $120.

DeFi platforms like MakerDAO have gained significant popularity in recent months by allowing users to issue loans on the Ethereum blockchain network with relatively high yearly returns.

DeFi loans can be liquidated too when Ethereum price drops

On a DeFi platform, borrowers are required to put up Ethereum as collateral to obtain loans. The collateral is made in Ethereum terms, which means that when the price of ETH drops, the value of the collateral declines in tandem.

When the price of Ethereum abruptly drops by a large margin, it requires borrowers to put up more Ethereum as collateral to reduce the risk of having their loans liquidated.

Ethereum is down 27% in 4 days: here’s why it’s crashing harder than other cryptocurrencies
Related: Ethereum is down 27% in 4 days: here’s why it’s crashing harder than other cryptocurrencies

But, when Ethereum’s value plunges by 30 to 50 percent within a short time frame, it makes it difficult for borrowers to make up for the lost value of Ethereum with more collateral.

For that reason, when the unexpected drop in the price of bitcoin on March 12 to $3,600 occurred, CryptoSlate reported that millions of dollars worth of DeFi contract liquidations were recorded.

At the time, Tushar Jain, a managing partner at cryptocurrency investment firm Multicoin Capital, said that the entire DeFi ecosystem was at risk of liquidation within a 24-hour span. Jain emphasized that he is concerned if the DeFi ecosystem as a whole is sustainable.

He said:

“I am worried that DeFi cannot be sustainable if the whole ecosystem could get liquidated in less than 24 hours. That was a real risk today.”

Since around $10 million worth of loans were liquidated across major DeFi platforms, the total amount of collateral in Ethereum in the DeFi ecosystem dropped from $1.2 billion to $567 million.

The DeFi market essentially saw an outflow of 57 percent within less than a month. It brought the total value locked in the DeFi ecosystem back to mid-2019 levels.

ethereum defi
Ethereum locked in DeFi plunged to mid-2019 levels (source: defipulse.com)

So what can be done to sustain DeFi?

The single biggest merit of using a DeFi platform is that it is based on top of a decentralized protocol. All financial activities including the issuance of loans are done in a peer-to-peer manner, without the involvement of central entities.

However, the advantage of DeFi could also be a real risk that could shut down the entire market upon flash crashes of major cryptocurrencies if no precautionary measures are taken.

Some prominent investors, like Jain, proposed the implementation of an industry-wide circuit breaker for that reason in case of extreme events that crashes the cryptocurrency market.

Jain noted:

“Today’s price moves in crypto are a strong argument for industry wide circuit breakers. The crypto markets structurally broke today & leading exchanges need to work together to prevent a repeat.”

Whether a severe short-term market correction as seen on March 12 would happen again remains unclear. But, during a flash crash-like pullback, the DeFi ecosystem becomes vulnerable to a cascade of liquidations.

For more news on decentralized finance, check out our DeFi section.

The post Why Ethereum locked in DeFi plunged $600m after intense 57% ETH drop appeared first on CryptoSlate.