Decentralized exchanges have been around for some time now, but only after the financial mania decentralization took hold do they become independent. Growth in DEX use has been less than exponential, with volumes nearly doubling in August and September from previous months.
But does size alone tell the whole story? Amidst the DeFi frenzy, some of the biggest winners were the DeFi Management Tokens. Starting with token Compounds COMP in June, subsequent projects have seen similar patterns. YAM by Yam Finance, SUSHI by SushSwap, and BURGER by BurgerSwap were all huge successes at launch, but their price started dropping as the first hype faded.
Looking at today’s data, it’s relatively easy to trace a direct correlation between skyrocketing DEX volume and the obsession with issuing control tokens, which it has so far been unable to hold back from the initial hype.
Echoes of the IPO man
Cryptocurrency has always borrowed terms and concepts from traditional economics. The idea for the first coin offering is taken from its traditional cousin, first public offering. But while the IPO is an indication of the investor’s confidence in the company’s future, ICOs have been available to the public, allowing anyone to create coins, regardless of whether there is a demand that could create value.
With DeFi tokens, it’s actually a proven product that gives market participants a certain value. DeFi Control Codes give owners a future stake in product development. As such, DeFi tokens are more comparable to the initial public offering concept than ICO tokens.
However, after the end of the listing period, most investors give up their shares in the secondary markets, according to UBS financial services company. This trend does not bode well for early recipients of DeFi code because they are usually HODLs. Of course, DeFi is at the start, so it’s too early to make any specific comparisons. COMP, the character who started it all, is only three months old. Omri Ross, head of blockchain research for the eToro trading platform, thinks DeFi tokens still have to be treated with caution:
“The jury is still not concerned with assessing DeFi tokens. Given the novelty of the space and the many complex factors affecting the evaluation of the token’s core value, management rates remain highly speculative.
No BTC link?
DeFi tokens may show an odd link to initial public offerings, but they are giving a huge direction in the crypto market. With few exceptions, most currencies tend to follow Bitcoin (BTC) price movements. Currently, DeFi codes are an anomaly in this sense. While BTC has traded in a relatively narrow range over the past month, DeFi tokens have shown price movements that are not related at all to the BTC markets. Coreis Wang, co-founder and CEO of Bitrue, a stock exchange that recently started offering decentralized, decentralized financing options, told Cointelegraph:
“I don’t think their prices will end after BTC. Most of the users and investors in DeFi are reasonably familiar with DeFi, cryptocurrencies and the economy in general, and they realize that the features these projects provide go far beyond what they were supposed to do.
All of these points raise some interesting questions about the future direction of the DeFi Token markets. The concept of an IPO lasted for decades. Investors will still be happy enough to apply for the IPO, even if the numbers show they expect to lose it. However, in some cases, equity investors can hold their positions for decades. For example, Berkshire Hathaway has owned shares in Coca-Cola and Wells Fargo for more than 30 years.
In the volatile world of cryptocurrency investing, it appears to be an exaggeration to believe that investors will hold the DeFi tokens for a long time, especially if their value continues to decline. Additionally, the question is whether the Law of Diminishing Return will come into effect, which means that every new DeFi token that enters the market will gradually become less valuable than its predecessors.
In a clip that appears to be driven by hype, this appears to be more than an opportunity. If this happens, DeFi tokens may begin to act like more established alternative digital currencies. This behavior will allow them to quickly rank in the token ranking, which more accurately reflects their long-term value and more accurately reflects BTC prices.
A threatening ghost
All of these assumptions fail to account for the factor that could completely eliminate an investor’s appetite for DeFi tokens: regulation. Despite Davy’s commitment to decentralization, few projects can claim to be truly decentralized.