DeFi is surging and it’s becoming apparent with the performance of the sector’s leading tokens.

While prominent crypto assets have done well on the year, with Bitcoin up +32% and Ethereum up +82%, Ethereum DeFi tokens in the top 100 have averaged a +237% return year-to-date (YTD). We last covered DeFi tokens in mid-Janaury where we compared the performance of ETH and DeFi to BTC over the course of 2019. What we found was that taking an equal-weight basket of 6 major DeFi tokens – ETH, MKR, SNX, LINK, KNC, ZRX, the basket (+550%) outperformed BTC (+86%) by a wide margin.

Now, halfway through 2020, we’ve decided to revisit the topic. This time around we’re specifically looking at the performance of all prominent DeFi tokens in Messari’s top 100 and comparing it to BTC and ETH. These assets include:

  • LINK
  • MKR
  • ZRX
  • KNC
  • SNX
  • REP
  • LEND
  • LRC
  • REN
  • NMR
  • BNT

As mentioned above, DeFi tokens on average have surged +237% since the beginning of the year. The increase was led by Kyber Network‘s KNC and Aave‘s LEND tokens which soared by 567% and 447%, respectively. With it’s upcoming and highly anticipated Katalyst token economics upgrade, Kyber continues to act as a key piece for liquidity in the DeFi ecosystem. This was exemplified with the on-chain liquidity protocol recently reaching $1B in cumulative volume, a major milestone for Kyber and DeFi as a whole. On the other hand, Aave’s resurgence began with its rebranding from EthLend in January 2020. Since then, the emerging money market protocol has climbed to $100M in total market size in just 6 short months.

Other notable performers include new (or resurging) tokens in the DeFi ecosystem – LRC, REN, NMR, and BNT. Loopring’s LRC surge comes after the privacy-focused liquidity protocol demonstrated its new zk-rollup exchange and payment protocol (LoopringPay) a few weeks ago. Built on top of Loopring v3, a Layer2 scaling solution leveraging zk-Rollups, LoopringPay allows users to instantly send ETH and ERC20 tokens for free and with zero concerns about network congestion.

Ren’s increase comes following the launch of the RenVM, a trustless cross-chain custodian for DeFi. While it’s still early, the RenVM has the potential to act as a critical liquidity bridge for Ethereum and DeFi to other major crypto assets like BTC, ZEC, and XTZ. In two weeks, the protocol has processed nearly $2M in cumulative volume as well as seen numerous integrations including one with Curve Finance and the mainnet launch of WBTC.Cafe, a permissionless mechanism for bringing Bitcoin over to Ethereum via the RenVM.

Lastly, Bancor’s notable performance follows the announcement of Bancor V2 and its new AMM. The liquidity protocol known for its $153M ICO in 2017 currently boasts the lowest PE ratio in the field of only 28, according to Token Terminal. However, the liquidity protocol still lags behind its counterparts in terms of cumulative volumes in 2020, only aggregating $33M in volumes on the year compared to Uniswap with $755M and Kyber with $562.

What’s interesting to note is that almost every DeFi token included in this basket outperformed both BTC and ETH. The only three to not make the list were MKR, SNX, and REP. Maker’s poor performance is largely due to the dilution of MKR in March during an effort to recapitalize the system in light of the volatility from Black Thursday. Synthetix‘s native token also struggled this year as the protocol fixed its front-running issues (which disproportionally skewed protocol earnings) as well as simply cooling off from a monstrous year in 2019 where SNX led the DeFi ecosystem with a 3,117% gain. Lastly, Augur‘s poor performance can likely be attributed to little-to-no tangible usage as the DeFi community patiently awaits V2, a major upgrade for the decentralized oracle and prediction market protocol set to drastically improve usability and accessibility.

The good news on that end is that Augur V2 seems to be getting close and entering the final stages.

The Broader Trend

There’s an emerging trend in DeFi with many of these assets effectively following the MKR token model – a token empowered with economic rights and governance rights over the protocol. It’s becoming known as the new crypto capital asset. Protocol teams are getting clever too, with many of them adopting liquidity mining/provisioning as a mechanism for legally distributing tokens to its users.

Balancer’s BAL and Compound’s COMP distribution models are becoming textbook examples on how to approach launching DeFi protocols and successfully decentralizing control from the protocol team to its surrounding community. These tokens aren’t imbued with any economic rights and solely represent voting power on future governance changes. Despite the token lacking one of the most important mechanisms for value accrual, Compound‘s newly launched token immediately surged on secondary exchanges. In case you missed it, COMP tokens went north of $100 on Uniswap yesterday, effectively valuing the protocol over $1B. This is substantially higher than the leading protocol, Maker, which is currently valued at around $550M.

Liquidity mining and governance tokens are just the beginning of a broader trend too. From what we’ve seen, UMA will launch something similar for its synthetic asset protocol. Even lesser-known, this is likely going to happen for Uniswap as well as the team hinted at a native governance token in their V2 announcement. But only time will tell on this one.

Key Takeaways

The other week,  Anthony Pompliano outlined that Bitcoin is clearly outperforming traditional financial markets. However, the tweet didn’t mention BTC’s largely discarded cousin, ETH, and the dozens of tokenized money protocols relying on the network.

To expand on Pomp’s tweet, here’s the performance of traditional financial assets compared to the emergence of crypto assets:

  • S&P: 1%
  • NASDAQ: 2%
  • GOLD: 11%
  • BITCOIN: 35%
  • ETHEREUM: 82%
  • DEFI: 237%

There’s no doubt that crypto assets have performed well this year, but the clear leader is Ethereum and DeFi. Hopefully just a small sign for what’s to come.

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