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DeFi Tokens & ETH-Killers Lead a Risk-On Market in 2021

Just over 20 days into 2021, crypto markets have already seen years worth of price action in traditional market’s standards. Though it has been a volatile couple of weeks, there are some clear patterns emerging in the top performing large cap crypto-assets.

Crypto-Asset (Ticker)Token CategoryYTD Return7-Day Return
Avalanche (AVX)Smart Contract Platform302%25%
Polkadot (DOT)Smart Contract Platform143%13%
Aave (AAVE)Decentralized Finance115%18%
Uniswap (UNI)Decentralized Finance109%11%
Maker (MKR)Decentralized Finance108%-25%
Solana (SOL)Smart Contract Platform102%-10%
Stellar (XLM)Currency/Smart Contract80%-16%
Cardano (ADA)Smart Contract Platform78%-2%
Dogecoin (DOGE)Currency77%-14%
Synthetix (SNX)Decentralized Finance68%-13%

As of Jan. 21, 2020

DeFi & Smart Contract Platforms Outperform

As evidenced by the table above, most of the best performing assets in 2021 thus far are either smart contract platforms or DeFi tokens. The notable exceptions are Dogecoin and Stellar, even though the latter does have limited smart contract compatibility.

Ethereum is also not far off from being amongst the top performing crypto-assets with a 62% increase year-to-date. In comparison, Bitcoin has appreciated 14%, in a so-called alt season.

DeFi tokens in particular have enjoyed remarkable growth over the last month, with their aggregate market cap doubling from $10 billion to $20 billion. These protocols have been favored by a market currently centered around opportunities with high potential.

As of January 21, 2021 using IntoTheBlock’s DeFi Insights

There are two likely reasons for smart contract platforms’ and DeFi’s leading returns: the market’s risk-on stance and the increasing demand for censorship resistance.

Risk-Seeking Investors Look Into Censorship Resistance

The risk-on positioning from the market can be observed from the high returns of volatile assets such as crypto. This positioning is linked to the upcoming $1.9 trillion stimulus package in the United States, which has increased forecasts for economic growth in the largest economy.

Due to this and the federal reserves’ plans to keep interest rates at zero for the foreseeable future, stocks and risky assets have rallied. In particular, assets with high potential growth such as space exploration (e.g. Virgin Galactic), electric vehicles (Tesla), next-generation finance (DeFi) and decentralized infrastructure.

Decentralization has also gained momentum amidst unprecedented censorship. Following the incitement of violence from former U.S. president Donald Trump, social media platforms permanently banned him. Similarly, social network Parler was kicked off Amazon Web Services following the incident. As a result, Google search results for “censorship” worldwide reached a five-year high.

As of Jan. 19, 2020 (6PM EST) via Google Trends

In light of the attention surrounding censorship, blockchain technology has been brought up by many as a potential solution. In short, public blockchain allows censorship-resistance as it is not controlled by one single entity or group of entities, but rather by a decentralized network.

As the crypto venture fund Paradigm’s cofounder Matt Huang implies, the increased censorship highlights the value proposition of a decentralized web built on top of smart contract platforms.

Via Twitter

Overall, crypto holders by and large profited from their assets thus far in 2021. As speculation in crypto increases, we see risk-on positioning accompanied by a growing proposition for decentralization as drivers in the recent run-up.

Smart contract platforms and decentralized finance protocols have accrued the most value as they fit both of these narratives. Ultimately, the next few years should be pivotal for crypto protocols to realize their potential as censorship-resistant next generation applications, instead of merely a risky bet.