blue wave

DeFi Blue Wave is Sweeping Over Losses

There’s a blue wave and we’re not talking about US politics; it’s the latest meme making the rounds in DeFi as tokens with blue logos are rallying ahead of the rest this month: That’s AAVE, YFI and SNX up at least 50% just in the past 10 days.

Image Source: CoinGecko Top Gainers
DeFi tokens as of 11/11. Image source: Trading View
Blue Chip Tokens

The larger theme is that DeFi “blue chips,” that is, tokens of more established DeFi protocols, are outperforming. In the 12 DeFi tokens analyzed for this piece (included in the chart above), three of the five top-performing protocols were launched before 2019, while the five at the bottom all launched this year. Market caps for the top five was about double the market cap of the bottom five.

After a month-long drought dragging DeFi tokens down by more than 50% from their peak, according to Synthetix’s sDeFi index, traders are returning to DeFi staples. While all tokens tracked are up in November, there is less interest for newcomers and forks like Sushi and Swerve.

Limited Liquidity Mining

Taking a closer look at the top gainers, they share something else: limited token rewards meant to drive liquidity, also known as liquidity mining.

While SNX leads the pack in terms of staking at 42% APY, its rewards are vested for a year and must be claimed weekly. AAVE currently features a 5% APY for staking in the protocol’s safety module, and YFI features no liquidity mining rewards at all.

But that’s not to say that tokens offering rewards are lagging far behind. The fourth-best performer, Uniswap’s UNI, is offering unvested APYs which continue to entice yield farmers to earn tokens and sell for a profit. 2.33M UNI is distributed in rewards across four incentivized pools per week, set to end this Sunday.

 Even the community’s favorite farm to dump, CRV, may have found its footing as the daily amount of tokens locked in the protocol starts to reach new highs while the price is up 37% in the last seven days.

Image source: Mechanism Capital
Governance Tokens Adapt

After a summer dominated by flash farms and food coins, projects are looking to adapt to a greedy farmers’ constant supply drip, and amend the ways in which governance tokens are earned.

One example is Index Coop, a community-owned index management project, where INDEX tokens can only be earned by providing DeFi Pulse Index (DPI)/ETH liquidity. The team has stated they have no plans to add additional rewards. 

If one thing is for sure, those who wrote DeFi tokens off may have spoken too soon. 

However, with 2017 flashbacks like CVC and DNT soaring by more than 500% on the back of a Coinbase listing, it’s hard to tell whether or not crypto investing has become saner, or if memes like ‘blue chips’ will drive communities through the next run-up.