As Bitcoin Grows, DeFi Takes Some Nasty Hits

Is decentralized finance (DeFi) dying? Or here’s a better question… Is the DeFi space on the verge of suffering?

The DeFi Space Isn’t as Strong as It Used to Be

These are the thoughts that are likely going through the minds of crypto analysts and industry experts alike at the time of writing. Bitcoin has been the biggest digital hit of 2020, having risen by more than 50 percent since mid-March. The currency is doing better than ever, but it’s come with a catch. All those who were invested in DeFi tokens are taking some nasty hits as with every bitcoin push into bullish territory, DeFi tokens tend to fall back.

Just months before, many of these currencies were boasting triple-digital booms, but now, it looks like all that hype is gone. The DeFi Pulse Index, which presently monitors the activities and trends associated with roughly a dozen digital currencies, mentions that the overall space is down about 26 percent in just the last two months alone.

Exchange FTX’s DeFi Index Perpetual Futures goes even further, and states that things have taken a nosedive of roughly 42 percent in the past few months.

One of the problems could be that many of these assets are not created for the same purposes as bitcoin and other mainstream currencies. They are not meant to serve as payment coins. In fact, they’re not even designed to be that speculative. It can be argued that while bitcoin isn’t utilized as a method of payment for most avenues, it can still be stored away in a digital account somewhere and given the opportunity to grow.

The same cannot necessarily be said for DeFi tokens, which are primarily created to give investors a chance to lend, trade and borrow from each other. They are designed mostly to work with apps and for lending purposes, thereby giving investors a chance to earn potential interest.

In other words, these currencies are gambling coins. With BTC on the rise and everyone turning their attention to it, these assets and others have likely suffered in the midst. Vishal Shah – founder and chief executive of crypto derivatives exchange Alpha 5 – stated in a recent interview:

Token values for various DeFi projects are definitely declining quickly, as they probably should. Most of the tokenomics for DeFi protocols have been built on farming, or pure degeneration gambling tendencies. Their longevity was questioned from birth.

He notes that last June, decentralized finance tokens such as Comp took major hits and dramatically crashed. He says that too many investors rushed to get in on the DeFi craze, which is ultimately what’s bringing the space down at this time.

Things Could Still Return to Form

However, he does believe that should things calm down, DeFi will eventually make its way back to the top. He mentions:

I think DeFi will have its place, in due time, in a more tempered version.

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