The crypto market seems to be in trouble. DeFi has also lost a lot of its value. In this context there is one exception, represented by Solana. What is happening?
When El Salvador announced on 7 September that Bitcoin would be legal tender in the country, the cryptocurrency markets took a heavy plunge, in some ways unexpected, but which many analysts justified with the classic financial motto “buy the rumour sell the news”, according to which markets would rise upon rumours and then sell once the news is out.
Declines in the DeFi market
The descent has continued with double-digit declines for many cryptocurrencies, starting with Bitcoin and Ethereum, though the drop has perhaps been greater for almost all of the so-called DeFi (decentralized finance) stocks, led by major projects such as Uniswap, Enjin, Compound, AAve and Maker, whose prices have dropped 20-30% in recent days.
Since the 7 September crash, the crypto market is down around 15% and daily volumes have also fallen by more than 50%, from around $418 billion to the current $190 billion.
DeFi’s capitalization is down about 8% from $135 billion at the beginning of September, which is 13.2%, and daily transaction volumes are down to $14 billion from about $30 billion in August.
Aave Link, Enjin and Uniswap, the DeFi market giants, are leading the market decline with generalized drops of 15-20%. For example, on 7 September, Uniswap lost 15% in a single day, while between 20 and 21 September, it lost over 20% of its value.
In the same period, LINK lost over 18% on the 7th and over 22% on the 20th and 21st. Similar performances were recorded by Enjin, AAve and Maker.
Is the DeFi market heading for a big drop or is it just a correction?
The DeFi market is still very small compared to the spot market, considering that there are currently around 3 million users in the whole market, compared to over 300 million in the spot market.
With these numbers, it is easy to see how speculation can be even greater than in a much larger market such as the market of traditional cryptocurrencies.
It is worth adding that decentralized finance is coming from a long period of great upswings, driven by a growing interest of operators and investors in this new form of finance.
The SEC’s investigation into DeFi’s largest exchange, Uniswap, at the beginning of September, may have had an impact on prices.
What’s next for the DeFi market
Matthew Roszak, founder and CEO of Bloq, a blockchain startup that advises financial institutions on the crypto world, is confident that the DeFi sector will definitely see a 10-fold growth to become an $800 billion industry.
The problem now is to understand how the market will evolve in the short term and understand if this is just a momentary correction and therefore a buying opportunity, or if the strong decline will continue. In July, Goldman Sachs submitted to the SEC the prospectus for a new ETF on decentralized finance.
Mark Cuban, the billionaire American entrepreneur and owner of the Dallas Mavericks NBA team, is convinced that the DeFi market is destined to explode in the coming years, eroding important market shares from traditional banks.
“Foundational DeFi benefit is that it simplifies borrowing for personal purposes,” Cuban tweeted on Thursday during a debate on DeFi, “It’s a hassle to borrow money from a bank,” he said. “And allows anyone with funds to be a lender as well.”
Solana, an explosive rise in its shares
From the general declines of these days, there is one asset that still manages to grow, coming out as the top crypto on the market in these first nine months of 2021. It is Solana. From $28 in June, it rose to over $200 on 9 September, before falling to its current level of $145. The gain compared to the same period last year is 3200%.
Solana is a blockchain network that can process 50,000 transactions per second and has thus become a candidate to become an alternative to Ethereum.
Its success can also be explained by the high visibility that many projects built on its network have received among investors. In August, these projects raised around $3 billion from investors, making Solana’s token skyrocket.
Caution is advised, although choosing the right projects could still yield interesting gains, as DeFi continues to be one of the most interesting innovative applications for finance.