DeFi sector hit hardest after cryptocurrency crash in September, Kaiko reports

Key facts:
  • Ether’s price volatility doubled that of bitcoin last month.

  • Despite the decline in DeFi, institutional interest in bitcoin increased.

A strong correction in the prices of tokens associated with decentralized finance (DeFi) was registered last month, according to the latest monthly report from the data provider on cryptocurrencies, Kaiko. As a consequence of this drop, the report says, the volatility of the Ethereum currency doubled that of bitcoin in September.

Almost all of the tokens leading the DeFi industry experienced negative returns between 20% and 60% in September, the Kaiko report says. The correction follows, according to the study, after record levels of capital flow to DeFi platforms that began last July.

The number of on-chain transactions reached an all-time high following the surprise launch of the Uniswap token, highlighting the urgency around scalability. Meanwhile, new records in transaction fees continued to plague the network.

Kaiko, Market Report, September 2020.

Despite the correction, the volumes of trading on decentralized exchanges were much higher than those registered in August. At Uniswap’s liquidity pools, for example, a total locked value milestone of $ 2 billion was reached.

The graph below shows the remarkable momentum of the Uniswap token after its launch, while the rest of the major tokens continued to decline, with the exception of yearn.finance.

Returns of the main DeFi tokens during the month of September. Source: Kaiko.

Kaiko highlights that the growth of DeFi has coincided with an increase in the issuance of stablecoins, as their deposits in liquidity pools have increased. By September 30, 3 of the top 5 tokens used on Uniswap were stablecoins. These comprised a total locked value of more than $ 500 million, equivalent to a quarter of the total value.

Bitcoin and ether reverse

In September, Bitcoin (BTC) and Ether (ETH) posted negative returns of 7.19% and 7.06%, respectively. The report also notes that volumes traded fell 18.31% in the case of BTC / USD and 8.03% in the case of ETH / USD.

The stabilization of the price of BTC for more than two months has decreased the volatility of that cryptocurrency, notes Kaiko. On the other hand, bitcoin balances on exchanges fell to levels not seen since November 2018. “The decline in BTC balances on exchanges may indicate that investors have decided to retain their assets for the long term,” says the report.

Also highlighted in Kaiko’s study is an increase in institutional interest in bitcoin, which was reflected in the increased investment in bitcoin by MicroStrategy.

After the sharp correction in early September, BTC and ETH rallied similarly to the major cryptocurrencies. Source: Kaiko

Although the monthly drop in the price of ETH was 7.06%, the initial price decrease was 17%, as it fell from USD 388 to a low of USD 320, and then recovered in the last week of September. Those price movements, Kaiko argues in the report, were largely influenced by events in the DeFi sector.

Faced with the increase in these correlations, Kaiko points out that, if bitcoin maintains that trend in the short term, investors could use other assets perceived as safe havens. Although he also claims that bitcoin has maintained a negative correlation with the dollar, which poses a “troubled bullish outlook” if the dollar continues to weaken.

As part of CriptoNoticias’ ongoing coverage of DeFi platforms, a complete review of the Aave platform was published last Sunday, including all the features and tools it offers to the cryptocurrency loan market.

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