Rising Bitcoin Price Confirms DeFi Might be a Bubble After all

Rising Bitcoin Price Confirms DeFi Might be a Bubble After all


Earlier this year, there was a lot of hype surrounding DeFi, or decentralized finance. Today, a lot of that hype has seemingly cooled off. While there is still a decent amount of total value locked, the figures have not improved all that much in the past month. 

Is the DeFi Hype Over?

Ever since decentralized finance became somewhat popular, there have been plenty of incidents. Numerous tokens resulted in rug pulls. Additionally, a fair few projects have been attacked, hacked, or drained. Harvest.Finance is the most recent example of the “lawless’ nature of DeFi today. Something will need to change before things get out of hand even further. 

Until that comes to pass, the current status quo may very well be maintained. Judging by the total value locked in DeFi platforms, there is no real growth in October. On the 1st of the month, there was just over $11 billion in TVL. Today, there is $11,21 billion.

BlocDesk DeFi TVL October 2020
Source: DeFi Pulse

Considering how the total value locked rose by leaps and bounds earlier, there is no real growth left today. Granted, the TVL rose to almost $12.5 billion not that long ago. Ever since, however, it has decreased by nearly 10% without showing signs of recovery. Although things are improving slightly, it seems most of the hype has come to an end.

One potential contributing factor is the rising Bitcoin price. When BTC rises in value, it sucks liquidity out of altcoins, tokens, and assets. In this case, the DeFi growth ‘halt” coincides with Bitcoin’s most recent price increase. A situation that cannot be ignored by any means. 

DeFi Rankings Remain Unchanged

One also has to consider which projects generate the highest total value locked. Of the top three projects, one is Wrapped Bitcoin. The tokenized version of BTC on the Ethereum blockchain is not an actual DeFi project. Instead, it is an asset that can be used for DeFi, but serves other purposes as well. Counting it as a “DeFi project: doesn’t necessarily do it justice.

BlocDesk DeFi Rankings October
Source: DeFi PulseRising 

Other than that, it seems little has changed for decentralized finance on Ethereum. Uniswap remains the undisputed king and is miles ahead of Maker. As DeFi Pulse only tracks Ethereum, all of these rankings are rather skewed. Multiple ecosystems exist today. One shouldn’t be favored over the other. 

Speaking of which, the Binance Smart Chain is getting a lot of attention lately. It is home to multiple decentralized finance solutions already. With its cheaper fees and faster transactions, it can become a rival to Ethereum in this segment. As such, data aggregators would do well to track all blockchains and their projects. 

AO/X Staff
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