DeFi tokens outperform others
This weekend has seen something of a thaw in the crypto winter, with BTC currently just above $22,000. This rise is due to traders scaling back expectations for a one percentage point hike in borrowing costs by the U.S. Federal Reserve later this week. The leaders in the market rise were the major decentralized finance (DeFi) coins, which boasted a double-digit percentage growth and outperformed BTC and ETH, the crypto market leaders.
For example, on 15th July crypto lending platform Aave’s native coin, AAVE, was up 15% at $91. This boost may have been helped by Aave’s announcement last week that proposed a decentralized yield-generating dollar-pegged stablecoin called GHO to expand services offered on the platform. GHO should generate additional revenue for the Aave decentralized autonomous organization (DAO) by sending 100% of interest payments on GHO borrowing to the DAO, according to Aave’s proposal.
Uniswap, a decentralized exchange (DEX), saw its token UNI trade at $7, a gain of 13%. At the same time, BTC had only gained 3.5% and ETH was up 8%. Other notable gainers were programmable blockchain Solana’s SOL cryptocurrency, privacy-focused coin Monero, Polygon’s MATIC, Cosmos and Algorand.
Traders decided the probability that the Fed would deliver a full percentage point interest rate hike on July 27 was at around 49%, a drop from the 80% probability that followed the release of Wednesday’s consumer price index (CPI), an indication of inflation or deflation. The repricing of the probability lower began later Thursday after Federal Reserve Governor Christopher Waller said the “markets may have gotten ahead of themselves” in pricing in a 100 basis point rate hike for July. However, Waller said he supports a 75 basis point rate hike later this month and may consider a bigger rate hike if the retail sales and housing data paint a positive picture of the economy.
However, there is a question about whether the current gains for DeFi coins will be long lasting. Crypto financial services firm Amber Group said, “We have seen some institutional mandates scooping up majors and DeFi blue chips, but it’s not like massive amounts.” One of the reasons for caution is the decline in the total value locked (TVL) in DeFi protocols, which has crashed to $38 billion from $95 billion this year, plus the volume of Bitcoin locked in DeFi and the number of addresses lending and borrowing in DeFi protocols, points to a continued slowdown in activity.