The curtain has fallen on the DeFi summer – not that the sector is finished, but the frenzy seems to be.
The changing of the seasons is marked by Compound’s governance token COMP falling below $100 early Tuesday. COMP launched the yield farming craze back in June as a new mechanism to attract assets to what is now the sixth-largest decentralized finance (DeFi) platform, and the first to briefly oust MakerDAO as the industry leader.
COMP has been hovering around $100 since a sharp drop on Oct. 6, which has brought it close to our arbitrary threshold, and has finally shed that sweet third magnitude.
Compound Labs founder Robert Leshner declined to comment on this story.
After Compound’s surge in June, things got interesting as DeFi’s money Legos started to stack up.
Liquidity mining, first launched on Ethereum by Synthetix in July 2019, has inspired this summer’s boom. The prospect of giving people a fresh new token beyond the normal return on deposits quickly sent COMP higher than anyone expected. On June 21st, COMP peaked at $372.
The resounding success of the governance token led other dapps to follow suit, such as multi-token pool maker Balancer, non-fungible token (NFT) marketplace Rarible, and others.
But events would quickly become comical in a way only crypto can.
“Personally, I think the UNI issuance is the pinnacle of this agrarian movement,” Primitive Ventures’ Dovey Wan told CoinDesk in an email.
The takeaway from the DeFi summer for Wan is the power of the fair launch narrative brought to life by Yearn.Finance. When COMP first launched, Yearn had already been a yield optimization tool, but the craze that yield farming sparked sparked many innovations.
Yearn creator Andre Cronje created the YFI governance token and challenged liquidity providers to earn it instead of buying it. Since he did not provide advance mines for himself, this brought the already highly acclaimed farmers into overdrive.
“The greatest value of this hype is to bring the fair start back into play,” Wan wrote. “The fundraising or bootstrapping liquidity mechanism itself is rapidly gaining notoriety and acceptance through farming. This will definitely add value to the industry as an alternative to the previous VC presale game.”
Other observers assess the perseverance of the industry in a similarly long-term manner.
“Anyone studying this space realizes that DeFi has major structural advantages compared to CeFi,” Spencer Noon, an investor at DLT Capital, told CoinDesk in an email, referring to traditional, or centralized, funding . “Part of the reason for this is that protocols don’t have employees, physical locations, or other costs that traditional financial firms incur.”
In a provocative twist, the last rays of DeFi summer coincided with US enforcement actions against crypto exchange BitMEX, which shed new light on the benefits of decentralization.
“If we look at the bigger picture, we see the recent indictment of [the Department of Justice] “on BitMEX is another alarm as to why we need a true decentralized funding alternative where it can be exposed to minimal risk of potential regulatory impact,” Wan wrote, adding that bubbles are moments for innovation and adoption.
Even as the DeFi summer cooled, the coin that started it all retained its value while the story that started it continued. It was not until September 4th that COMP dipped below $200.
But Kain Warwick of Synthetix, the company that introduced liquidity mining to the crypto lexicon, is undeterred by the cooling of the DeFi trend in 2020.
He believes there is a real industry behind all of this.
“[Decentralized exchange] Quantities and usage as well [total value locked] are still more than ten times higher than at the beginning of the year. “Although the irrational exuberance has been tempered, we’re still on the right track in terms of traction,” Warwick said, adding:
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