As we talked about the curious case of YFI, a governance token launched with zero supply and zero value, it is quickly becoming a favorite among the crypto market.
In less than a week, this valueless token has flown to the highest level of $4,660 today. At the time of writing, YFI has been trading at $3,316, as per CoinGecko. From nothing, it has gained a valuation of $88 million, with a maximum supply of 30,000 that the community is voting to cap at.
Some are expecting this DeFi token to rise to the Bitcoin level and, at an off chance, even hit $10,000 before the world’s leading digital currency.
You think it’s a joke.. but watch it go $YFI https://t.co/M6wx1tHu1V pic.twitter.com/VbAAzc2sfR
— Josh Rager 📈 (@Josh_Rager) July 25, 2020
YFI might be the latest hot token in the DeFi space. Still, the entire sector in itself has been pretty hot lately, so much so that it has pushed Ethereum usage and fees to hit new highs leading to periods of congestion and highlighting its scaling challenges.
Over the last month, DeFi protocols exploded with now nearly $4 billion total value locked (TVL) in the sector, as per DeFi Pulse. TVL recorded a growth of a whopping 113% in July.
Also, the total Ether locked in DeFi protocols has exceeded 4 million ETH — a new all-time high, the same as 18.2k BTC, and 280.2 million DAI.
The reason behind this much demand is “yield farming,” which was triggered by Compound.
The decentralized finance (DeFi) protocols built on Ethereum hand over the governance in the form of tokens to its users to achieve decentralization. And “using a protocol to earn native platform tokens is known as ‘yield farming.’”
ETH Undervalued or has a questionable long-term security model?
In the DeFi ecosystem, the DEX volume rocketed over the last month and is now rivaling some centralized exchanges, thanks to yield farming — especially swapping between two different ERC-20 tokens, particularly stablecoins.
Stablecoins had a record Q2 growth, not only surpassing $12 billion in market value but also being used within DeFi. Both USDC and DAI market cap grow over 50%.
“DEXs provide liquidity for all DeFi tokens and projects. Token creation will likely outpace how quickly centralized exchanges can add them, making DEXs the natural playground for unique new assets and the long-tail of smaller assets,” stated Coinbase in its latest report.
Over the last seven days, DEXs did over $1 billion in total volume.
Also, the market cap of all ETH tokens exceeded the market of Ethereum itself. According to Coinbase, it may either “indicate ETH is undervalued,” or raise questions about its long-term security model.
DeFi may boast of activity, but not many people are using it, but even that is a good thing as it means there is more room for growth. Also, it has grown 100% YTD.
Assuming DeFi users have two addreses on average, there are now 134K users. This is a small number with massive room for growth. The market is experiencing Defi’s first wave. There will be more.
Chart below shows unique addresses across projects. Source: https://t.co/lgHxQYPycd pic.twitter.com/WgkzbsBlOR
— Alex Krüger (@krugermacro) July 24, 2020
DeFi is a “prominent narrative” in crypto. In this industry, “Outsized financial incentives drive increased user awareness, and people run through brick walls to participate,” which leads to smoother onramps, more refined revenue models, and more user-friendly products over time.
According to the Coinbase report, it is reminiscent of what happened with Bitcoin in 2013 when only a select few understood it, but price movements drive awareness and growth.
“Today, DeFi returns are sparking similar levels of awareness, but only the crypto-sophisticated are running through hoops to capitalize,” it reads. “There is some fuzziness in the numbers, but the trend is hard to argue against.