DeFi: The New Speculative Bubble in Cryptocurrencies?

The decentralized finance ecosystem “DeFi” on Ethereum continues to expand with more and more tokens relating to this created ecosystem. This phenomenon deserves that we dwell on it to ask a question: is DeFi the new speculative bubble of cryptocurrencies?

DeFi tokens multiplication

During the bubble in 2017, the Ethereum blockchain witnessed a wave in which hundreds of tokens were created and funded by ICOs. the narrative was as follows: Which will be the next Bitcoin?

This phenomenon has since calmed down, but another narrative seems to take over, that of decentralized finance. Born a little less than 2 years ago, the number of new tokens created on Ethereum relating to DeFi exploded.

This graph summarizes the growth in the number of projects in decentralized finance and the number of associated tokens running on Ethereum and Uniswap.

Thus, the number of new DeFi tokens created monthly is growing exponentially, as shown in the graph above.

There are many DeFi projects to launch their tokens. For example, we recently covered the launches of the COMP and BAL governance tokens, the Compound and Balancer protocols. But most striking in the graph, is the exponential growth that the curve takes.

A note should however be made about Uniswap, which generates noise.¬†Indeed, Uniswap is the main creator of DeFi tokens in the ecosystem, because¬†each protocol’s liquidity pool has its token protocol¬†called¬†liquidity¬†token.¬†This explains the almost constant creation of new tokens on the part of Uniswap (¬†in red and pink on the diagram¬†) month after month, as new pools emerge on the protocol.

DeFi tokens price growth

DeFi protocol tokens are experiencing strong growth at this time. Since the beginning of the year, most of these tokens have seen their price increase, this is particularly the case for tokens of decentralized exchange platforms.

DEX tokens outperform CEX tokens – Source: Messari.

According to the words of the CEO and founder of the DeFi Zerion wallet,¬†Evgeny Yurtaev, in a¬†twitter¬†thread, this trend can be explained by¬†Ben Thompson’s theory of aggregation.¬†according to which the sharp decrease in costs has the direct consequence of the multiplication of projects.

This theory was initially used to explain the proliferation of business on the internet.

“Similar to what Internet did to content, DeFi is doing to finance. [‚Ķ] Building a DeFi financial asset is absurdly cheap. Even cooler – anyone with a web3 app/wallet will be able to use it the moment you deploy it.”¬†Evgeny Yurtaev

Where most ICOs had no interest, the DeFi protocols bring value, hence the question that remains unanswered: is this expansion of DeFi tokens part of a speculative bubble, or would this be the gateway to the widespread adoption of cryptos?