DeFi plummets: 46% drop for YFI and UNI tokens

What’s happening?

After an exhilarating couple of weeks in the DeFi sector, the inevitable has occurred. A price correction in Ethereum has sent token values plummeting. The recent token collapse has resulted in YFI and UNI dropping by 46%.

Furthermore, the price effect also seems to have been influenced by the news on Monday concerning the release of the FinSEN files. Major international banking corporations have once again been accused of mass money laundering and flouting AML regulations with prior knowledge. As a direct result, this week, HSBC reported their lowest stock value in 25 years. 

At the moment, the two coins garnering the most attention due to their status and rapid declines are Yearn.finance (YFI) and Uniswap (UNI). Both have dropped by 46% and 48% respectively after both reached an impressive monthly peak.

The DeFi domino effect

A large proportion of DeFi tokens have dropped by between 15% to 25% at the time of writing.

Yearn.finance is a good example of a protocol that has become a leading player in the DeFi space in less than three months. In the process, the price of the YFI token rose by 1,200% on Binance to a peak of $43,966.

Uniswap’s native governance token UNI launched in mid-September and saw a similar surge in just a few days. As DappRadar reported, Uniswap airdropped 400 UNI tokens to any user that had used Uniswap before September 1st. At its peak of around $8.80, the 400 UNI tokens were worth $3,520.

UNI saw a massive price spike in a short period because of multiple major exchange listings. Within hours of launching, Coinbase Pro, Binance, and FTX listed UNI. As a result, the price of the token surged from $0.30 to $8.80 in less than five days. 

The listing of these tokens by major exchanges, and in seemingly super-fast time leads us to believe that these moves were pre mediated and that those exchanges in question are lowering their barriers to entry. 

Furthermore, Binance seems to be going all in on DeFi recently with the announcement of the Innovation Zone. A dedicated trading zone where users are able to trade new, innovative tokens that are likely to have higher volatility and pose a higher risk than other tokens.

TVL takes a hit

Recently DappRadar unveiled its latest metric – aTVL. aTVL or adjusted total value locked represents the true value locked as it eliminates fluctuating token prices which can cause a skewed view of the ecosystem. It is important to state at this moment that TVL and aTVL should be used in conjunction when analysing the DeFi sector as they are complementary to each other, not competing. 

Looking plainly at the numbers we can see that aTVL is lower than TVL by a considerable amount. Almost 1 billion dollars. This means that whilst we acknowledge the immense growth of the DeFi ecosystem we challenge how much of that growth is down to fluctuating token prices and how fast the growth has really been. 

Overall we think It is too easy to quote an increasing number and see growth. In an industry where the media look for big numbers we want to bring some reality and for those interested in the methodology of how we calculate aTVL – you can read more about that here.

Ethereum feeling the strain

Ethereum has traditionally led the rallies among altcoins, including DeFi tokens. But recently during a bull run, Ethereum has also dictated the price of Bitcoin. For example, from March to August 2020, as the price of Bitcoin recovered from the Black Thursday crash, the price of Ethereum strongly outperformed Bitcoin as can be seen below

But now we observe a change in these patterns. Since Sept. 1, Ethereum has struggled to match the performance of Bitcoin. While BTC rallied from $10,300 to $11,100, Ether remained pinned below $400.

Ethereum, as the dominant protocol in the DeFi sector seemingly suffered due to increased selling pressure on DeFi tokens within the ecosystem. Resulting in an almost 50% correction in price from tokens such as UNI and YFI recently.

This short term inverse correlation between Bitcoin and altcoins suggests that Bitcoin suffered from investors moving profits from DeFi tokens to Bitcoin. 

As always we will continue to monitor and report on developments as they unfold. Make sure you bookmark DappRadar and sign up to our newsletter below to get updates direct to your inbox.