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The seasons are changing, and economies are shifting; will this be a banner summer for decentralised finance?
Start the tractors: the farmer’s almanack of decentralised finance predicts that DeFi Summer 2.0 can produce some healthy yields in the environment.
Several traditional metrics used to assess the health of the DeFi space point to a looming bull market, but maybe the most exciting of all is the rise in the price of Curve’s CRV governance token.
Curve, also referred to as one of DeFi’s “backbone” protocols, is a critical method for many retail and protocol-level yield farming strategies. Curve enables low-cost, low-slippage trades of related securities, such as Dai, USD Coin (USDC), and Tether (USDT), and consumers who deposit liquidity into Curve’s pools receive trading payments as well as CRV governance token emissions as an incentive.
As a result, according to DeFiLlama, the protocol is the seventh-largest by gross value locked, with $6.49 billion in reserves, and serves as the main yield-bearing protocol leveraged by yield vaults such as Yearn.finance.
Remember $CRV is the underlying yield on so much of defi:
All yields are about to become supercharged across dozens of protocols with strength of $CRV price.
I think we’re about to have a good few weeks ahead.
— Cryptoyieldinfo (@Cryptoyieldinfo) January 17, 2021
Reading the stars, testing the soil
If the price of CRV can be used to predict how many common farming strategies can do in the coming months, then the summer looks promising.
At the time of publishing, CRV was up 4.6 percent on the day to $3.94, part of a month-long surge that had carried it 51.1 percent higher, according to CoinGecko.
The rally is being fuelled in part by CRV’s tokenomics. CRV investors can lock their tokens for four years in exchange for veCRV, which gives them access to extra protocol fees and higher yields. Similarly, as DeFi gains traction as a top protocol, CRV prices could rise as well.
However, veCRV owners have recently been the beneficiaries of a host of lucrative airdrops. Ellipsis, a “authorised fork” of Curve on Binance Smart Chain (which copies the protocol down to the frontend, a la Windows 98), airdropped an initial round of EPS tokens to veCRV holders. Similarly, Convex Finance, a new site that aims to “simplify staking on Curve,” has announced an airdrop to veCRV holders, though the particulars of the drop have not yet been published.
Airdrops can be a tricky business. Protocols seek governance token holders who will be committed to the project and cast knowledgeable votes. Although in many instances this means distributing to wallets that have already and regularly dealt with a protocol, with upstart ventures building on the shoulders of others, distribution criteria may instead be designed to draw a particularly informed audience — and veCRV holders suit the bill.
Finally, it has the ability to build a virtuous loop for the whole DeFi ecosystem: Speculators purchase CRV to turn to veCRV in the expectation of securing an airdrop; CRV’s price rises; DeFi’s yields grow fatter.
Bountiful good news
If the fate of CRV and the yield strategies that depend on it plays out, a slew of other metrics point to a good summer for DeFi.
DeFi’s TVL number is now $123.29 billion, up $20 billion from the previous week when it surpassed the $100-billion mark. Despite the broader market’s pullback after an unusually strong Thursday, several DeFi projects, such as Curve and Compound, remain green on a daily and weekly basis, and OG projects, such as Maker, are on a roll, with the MKR token surpassing $4,000 for the first time yesterday.
Several analysts are hoping for a “DeFi Summer 2.0” as a result of the boom. Although a handful of DeFi Gen 2 tokens outperformed over the winter and spring, the sector appears to be the beneficiary of a heavy rotation into older, proven ventures. Last summer, the room exploded, but it was also marred by a rash of hacking and exploits.
DeFi Summer II: Electric Boogaloo
— Jason Choi (@mrjasonchoi) April 15, 2021
However, the best omen for DeFi (as well as the wider market) is the success of a joke: Dogecoin (DOGE).
The meme currency is greedy for blood, outperforming five-digit returns on the year by 12,600%. When the Shiba Inu races, other altcoins seem to follow — yet another indicator leading to a bountiful DeFi harvest.