What do these metrics say about UNI, yearn.finance and other DeFi tokens?
The overall crypto market capitalization was $1.5 Trillion, despite millions being shaved off from the drop in altcoins’ price. Bitcoin continued to trade above the $35000 level and DeFi projects with high market capitalization have started rallying. Despite an overall drop in DeFi’s TVL, an increased inflow of investment was seen.
There are several metrics that support price signals, like TVL and on-chain metrics. Few of them have emerged as price catalysts. First of all, TVL is not a complete metric in itself for supporting a narrative, though it is a key component to the overall growth of the DeFi ecosystem components.
The price of DeFi projects largely depends on external factors like the correlation with Bitcoin and social media activity. Since the governance use case accounts for several top projects, further projects on decentralised exchanges (DEXs) and lending protocols are rallying.
Metrics like the number of active users, trading volumes on decentralized exchanges, interest per year on lending protocols, amount deposited in lending protocols, and the amount of outstanding loans are some of the key metrics. In the past two months, projects like UNI, CRV, YFI hit their local highs before the first week of May. The exceptions are SUSHI, RUNE, AAVE and SNX which hit higher before the flash crash of May 19.
Following the sell-off on May 19, a big chunk of major DeFi tokens have dropped over 60% in price and market capitalization. In the 60-day period, Enzyme, Strike and Cream Finance have rallied. These are the DeFi projects with low market cap, low number of users relative to other top projects.
TVL tracks capital, which is mercenary and temporary, and not all capital is equal. Uniswap V3 is more efficient than V2 and the value is more extractable. Investors care about downside protection and not just price hits and maximum values. During a bull market, more traders care about prices, rather than transaction fees. In a bear market, protocols offer high yields to keep traders onboard in the bear market and the current rally is supportive of the bullish narrative.