Devastating DeFi: Is Decentralized Finance Really Dangerous for Altcoins?
It’s impossible to deny that 2020 has been the year of decentralized finance.
The hype around crypto-lending services like Compound and Uniswap, along with the decentralized ecosystem yearn.finance, has been making headlines since the early days of the year, with thousands of investors keeping their ears open for DeFi, and a range of digital currencies climbing up the altcoin top-10 ladder. Can that lead to any jeopardy for some altcoins? Let’s find out!
The unexpected growth in popularity and adoption of DeFi has led to a surge of prices for currencies related to yield farming. Ones like GENE, YFI, LEND, and a range of others have witnessed never-before-seen highs this year. The price behavior of yearn.finance alone has shocked the crypto community and practically split the life of the crypto industry into before and after.
At a high of $40,000, YFI made crypto lovers forget about Bitcoin’s existence. Bitcoin’s most colorful bullish rally as of 2017 was startlingly replaced by the astonishingly high price that yearn.finance managed to reach, providing its holders with brilliant opportunities for margin income this summer.
Another unprecedented success is GENE Token by Gene Finance. GENE is the governance token distributed to the broader community in order to facilitate the decision-making process around the cross-chain DeFi protocol. The GENE token is tasked to both incentivize liquidity and staking on the Gene Finance platform. The platform allows harvesting GENE tokens by staking other ERC20 compatible tokens right on the platform, so the Yield Farming mechanism works its best. Total value locked has already surpassed 3 million dollars, and different liquidity pools have extremely high APY (about 350%), which can tell a lot about GENE’s success and future prospects.
Statistics prove that a range of top-level DeFi currencies have managed to surpass governance projects and tokens from infrastructure initiatives like LINK or UMA, even though UMA became one of the leading DeFi projects in September this year.
The appearance of DeFi on the global crypto stage was also welcomed due to DeFi’s ability to be combined with smart contracts on blockchain technology, enabling users to make transactions without any third-party intermediary.
With the attention of all investors focused on projects based on smart contracts and decentralized finance technology, like ADA or ETH, it has become evident that numerous alternative coins, especially those related to fast transactions and SWIFT payment solutions, have fallen behind, finding it very complicated to compete with high-profile newbies.
Altcoins like LTC, EOS, XRP, and XLM have been defending their positions for the whole summer, but they couldn’t go after BTC and ETH, which have been on the rise, shaping DeFi’s boost as of 2020.
The crypto market today looks deserted. Investors who were literally crowding it earlier in the pursuit of a new soon-to-rocket altcoin are all chasing DeFi projects today, leaving altcoins empty-handed. Here comes the question: will the global fascination with DeFi destruct what remains left of altcoins in the near future, or is there still a chance for alternative currencies like LTC and XRP to stake a claim? Let’s try to find out what is in store for cryptocurrencies in the years to come.
Probation Period
The late days of summer this year threw tests at all altcoins. DOT demonstrated the worst market performance and is still showing no signs of recovery but falling by approximately 10% in price since autumn started.
Autumn showed a slow decline in the price charts of Bitcoin and Ethereum, which has led to definite fluctuations of DOT and other altcoins. Bitcoin lovers don’t have to worry about any serious falls because they are unlikely to happen, while DOT holders may find their holdings losing value if the price breaks a support level. Though Polkadot’s support has remained relatively unchanged over the past few weeks, a drop below its current level could be devastating for the asset and its investors holding on to hopes for higher prices.
Many reputable experts in the field of crypto remain calm and say that it’s too early to panic.
They remind the crypto community that Bitcoin has enough power to drive the price up and save altcoins, still the recent events show that Bitcoin itself may be too vulnerable in terms of price behaviour — and this lack of stability reflected in price periodic crashes can’t but worry the community.
Based on how the market looks today, it’s evident that Bitcoin is gaining momentum due to an ever-growing corporate demand for it from companies like MicroStrategy, keeping Bitcoin much more than alive and kicking. As long as Bitcoin is in demand and people don’t forget about it, the crypto market won’t fall apart.
At the moment, the price ratio between BTC and LTC is 1:217.7 — a rather steady difference despite Litecoin’s modest price. If Bitcoin enters a bullish rally, it may save altcoins like Litecoin and the whole cryptocurrency market from a disaster.
Things May Be a Little Tense with DeFi
Back in midsummer 2020, DeFi was making headlines. It was on all social media platforms related to crypto, and it seemed like it had come to conquer the crypto world with nothing able to stop it. DeFi-related currencies were booming, naturally or artificially, fueling interest and generating profits for investors who were all-in for decentralized finance. Then a range of clone tokens emerged, mocking DeFi leaders and cooling down the hype a little. Some of them managed to gain value, but most of them lost everything in a few minutes, like Hotdog, which dove from $4,000 to $1 in less than a day since launch.
It’s no use denying that decentralized finance projects offer users top-notch security and highly efficient smart contract performance — a feature very much valued by the crypto community. But it’s also widely recognized that new DeFi currencies that have only just emerged on the market offer poor usability, reminding us of the crypto newbies back in the years 2017 and 2018 that hardly made it through the ICO stage.
Low levels of credibility and reliability among newly emerging DeFi tokens can lead them down the same path as ICO tokens, particularly as Ethereum’s on-chain technology is growing like never before. If it happens, investors will be the first to face the blow and deal with the consequences. Invested funds will be streamed to other sectors, but there will be no DeFi blurring the sights of those seeking crypto profits. There will be Bitcoin and altcoins — alive as never before and waiting for investors to return.
2020 is soon to terminate, and the crypto industry will welcome 2021 in its most volatile state. If the DeFi bubble happens to burst by the end of the year, it will pave the way for a bright new year for traditional cryptocurrencies after a long bearish winter rally. But if DeFi continues growing, and the traditional cryptos don’t manage to catch up with it, it may mark the beginning of a new long-lasting era of cryptocurrency market.
