The recent downturn in many DeFi projects suggests an overvaluation, but turnover and TVL suggest that there are grounds for optimism.
There has been a lot of movement in the crypto market over the last month as the six-month upward trend of the Altcoins has come to an abrupt end, while market leader Bitcoin (BTC) has failed at the $12,000 hurdle.
At the same time, the great run of the decentralised
Financial Services (DeFi) continued to rise, bringing the „Total Value Locked“, i.e. the total assets invested in DeFi projects, to more than 10 billion US dollars, although the prices of DeFi cryptos actually declined slightly.
As Cointelegraph had previously reported, DeFi had crashed at the end of September, after Bitcoin (BTC) and Ether (ETH) had previously seen a downward trend. The news that US President Donald Trump had become infected with the corona virus then seemed to have caused additional damage to the DeFi market.
Although Maker (MKR), Uniswap (UNI), Yearn.finance (YFI) and other DeFi crypto currencies have thus suffered significant losses in the last two weeks, many other data indicate that the fundamentals of DeFi cryptos are still strong.
Of particular note are Maker, Uniswap and Aave, whose turnover has risen between 130% – 440 % in the last 30 days, although (!) their prices have all fallen.
Many DeFi-Kryptos are overvalued
It is difficult to measure the exact value of DeFi projects on the basis of standard indicators, as the projects sometimes differ fundamentally. The most commonly used indicators are turnover and Total Value Locked (TVL).
Turnover indicates how much capital DeFi projects earn through their actual product, which in turn indicates the current demand and market sentiment.
The Total Value Locked, on the other hand, indicates how much capital is invested in a DeFi project in total. This in turn shows how optimistic investors are about the project and its market share. The TVL is also indirectly linked to the available liquidity and the volume of the staking pools.
As can be seen from the table above, the turnover of the large DeFi projects has increased significantly in the last 30 days. Nevertheless, the related crypto currencies have lost between 20% – 82%. Maker is a good example of this, because while the market value here fell by 24 %, sales increased by a whopping 449 %.
If the TVL of a DeFi project is constant and sales are increasing, then a fall in the share price indicates that the mood in the market is currently very cautious. A similar phenomenon can be seen in Uniswap and Aave, where there are also heavy losses on the table, while both projects have gained more than 235 % in sales.
Jeff Dorman, Arca’s Investment Director, explains that the fundamentals, in this case in terms of sales and TVL, do not necessarily follow the same trend as the share price. Considering the apparent contradiction between rising sales and falling prices of the DeFi projects, Dorman therefore writes
„Prices and fundamentals do not always move as one might think. The DeFi are a good example of this this month“.
In the medium term, Dorman sees this as the „perfect“ opportunity for value-oriented investors, because this dichotomy reveals which projects have fundamentals that outweigh the recent downturn in the crypto market. So he writes:
„Not all DeFi cryptos are the same. Some do not create any added value at all, no matter how much sales they make, while others add value when their sales go up. This is the perfect opportunity for value-oriented investors. The sector is in a downturn, but in the long run there will still be some gains and some losses“.
Positive omens: TVL remains unchanged
The on-chain data from Digital Assets Data show that the TVL of the DeFi market is virtually unchanged. Although many DeFi cryptos have lost between 30 – 50 % of their market value, TVL still stands at over 10 billion US dollars.
The price of Yean.Finance, for example, has fallen by 44 % in the last few days, which means that the project is now 56 % below its record high.
Despite this response, investors and analysts continue to view the project very positively. Earlier this week Yearn.finance announced that new Stablecoin Vaults will be introduced soon. This means that there is a continuous development.
Further evidence that the price level does not necessarily reflect the „health“ of a project is the data from Defipulse, which shows that Yearn.finance still has a TVL of almost USD 700 million. A figure similar to that in August, when the share price was even higher.