It’s fair to say that the summer of 2020 was by no means a quiet one for Yearn.finance. The DeFi token positioned itself at the forefront of the decentralized finance boom and rallied from a value of around $790 towards a peak of $43,337 within two months before a significant collapse. Could the coin that promised so much return to prominence in the future?
For all of the excitement offered up by decentralized finance in the form of smart contracts, and loans that can be tied up without the need of any middlemen, investor confidence in DeFi tokens has fallen dramatically following the summer, with losses across the board for those still tied up in the coins.
After eclipsing Bitcoin’s famous bull run of late 2017, Yearn.finance has dipped to around $10,000 at the time of writing – falling below the price of Bitcoin for the first time mid-August when it was mid-way to over $40,000.
As the chart shows, the future looks somewhat ominous for Yearn, with the coin’s collapsing price taking an increasingly aggressive turn. But with so much potential stored up in DeFi, could it really be curtains for the coin?
Interest Shifting to Bitcoin
It’s been suggested that decentralized finance tokens have simply been a victim of circumstance and that dwindling investor interest has been compounded by Bitcoin’s recent bull run – leading to many investors cashing in their DeFi chips and jumping ship in favour of the famous old coin.
As the chart above shows, while there is still a significant figure of over $10 billion locked into DeFi protocols, the value invested in decentralized finance has been consistently falling following the announcement of Bitcoin’s newfound relationship with payments giants PayPal and Square. The announcement that PayPal was set to accommodate Bitcoin itself led to the value of the coin catapulting by 24% – a figure that proved too tempting to miss for many now former DeFi investors.
Further evidence that DeFi investors have migrated over to Bitcoin and its derivative products can be seen in fresh peaks in BTC futures volume based on various exchanges:
One of the biggest dangers of decentralized finance, as it attempted to win over investors from more traditional cryptocurrency holdings, was always going to involve maintaining interest for long enough to win more committed levels of investment. As DeFi’s meteoric rise slowed, and other coins began showing bullish signs, there was always going to be a significant moment where protocols would have to work to retain interest.
Is DeFi Dying?
With money tumbling out of DeFi, it’s worth asking whether projects are already entering a death spiral. Speaking to CoinTelegraph, Nicholas Pelecanos, head of trading at NEM, claimed that “DeFi is currently on a knife’s edge in terms of its capacity to handle capital and could easily fall into a bubble.”
Pelecanos noted that DeFi technology is still in its infancy, with infrastructures and processes still very experimental. This may have led to something of a DeFi wild west, where a large volume of scams, pump and dump schemes and rug pull projects are entering the market and undermining the technology that other protocols are working towards.
Jason Wu, founder of Definer.org, kept a positive outlook on the world of decentralized finance, stating: “With the influx of capital in the DeFi space, projects are building more applications for the next generation of financial networks.”
It’s worth remembering that the technology within DeFi projects will inevitably play a major role in the future of finance. Smart contracts delivered on blockchains offer parties with an unprecedented level of control over their transactions and we are sure to see more exciting decentralized finance protocols arriving in the future.
However, whether the future of DeFi will retain some of the names that became famous over the summer months remains to be seen.
Yearning For Recovery
So, with the short term future of cryptocurrencies seemingly pointing towards the growth of Bitcoin and the long term future displaying slightly more optimism for the world of DeFi, where does Yearn.finance sit in the grand scheme of things?
The future of Yearn varies dramatically depending on the opinion of the analyst you’re listening to. Speaking to News BTC, one unnamed analyst stated that Yearn.finance was “finished” unless it could redefine its product suite.
This outlook is perhaps understandable in a market that’s largely been left scarred by pump and dump scams. Yearn certainly has the potential to withstand a loss of investor confidence better than most of its DeFi counterparts, but there may need to be a greater degree of transparency entering the decentralized finance landscape before we see this change take place.
However, other insights cast a more positive forecast for Yearn.finance. Blockchain data and analytics firm, Santiment, has stated that on-chain trends for the asset are beginning to convey some optimism for longer-term investors:
“It appears that $YFI is showing some signs of some bullish divergences, based on our research. An increase in whale activity is a good sign, and there appears to be an uptick in active addresses as well. Enjoy our deep dive on the popular DeFi asset,” the company claimed in a Tweet.
The erratic trading patterns of DeFi may cause some concern for investors, but it’s worth remembering that decentralized finance may one day fuel a financial contract revolution through the level of blockchain technology that some more traditional cryptocurrencies simply can’t replicate.
There’s plenty to be excited about when it comes to DeFi, and Yearn.finance may well be a key player in helping this exciting future become a reality over the coming months and years.