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Aave, SushiSwap, and other major DeFi bluechips are rallying hard despite Bitcoin's consolidation.
DeFi blue-chips, including Aave (AAVE) and SushiSwap (SUSHI), have been rallying hard in the past several days while Bitcoin is seeing range-bound consolidation at around $35,000 as of Jan. 17.Â
Both AAVE and SUSHI prices have risen by more than three-fold since December, within merely a month. Investors attribute the bull run of DeFi tokens to the market âre-ratingâ the major DeFi projects.
SUSHI/USDT 1-day price chart (Binance). Source: TradingView.com
Why is DeFi projects like SUSHI and Aave getting âre-rerated?â
The DeFi market has had an incredible run since 2020. The total value locked (TVL) across DeFi protocols has surpassed $22 billion, demonstrating the marketâs fast growth.
DeFi market cap/TVL. Source: Digital Assets Data
However, despite the rapid growth, most DeFi protocols were valued at around $1 billion. In contrast, many âOGâ altcoins have multi-billion dollar market caps, yet have lower user activity and no cash flow.
DeFi protocols are unique in that they are cash-flow generating. This means platforms like Aave, Synthetix, and Yearn.finance have small fees that can be used to fund the treasury or compensate users that stake their tokens to the protocols.
Based on the fast-growing userbase of most DeFi protocols and the increase in their cash flow, investors said that DeFi protocols are seeing a key âre-rating moment.â
Santiago R Santos, a partner at ParaFi, a DeFi-focused fund based in the U.S. said:
âDeFi protocols creeping up the top 20 is a key re-rating moment. As stupid as it may seem, it's like being on page 1 of Google search results. So far, DeFi has captured limited mindshare. It's
Santos emphasized that it is hard to describe any other asset class that is as capital-efficient, profitable, and fast-growing, like DeFi. He added:
âWatch as we go through a fundamental re-rating of DeFi protocols. Point to any other asset class that is as high growth, profitable, and capital efficient as DeFi? Iâll wait.
Whatâs next for DeFi?
Currently, Aave and SUSHI are valued at $2.2 billion and $900 million respectively. Yet, analysts still say that they are both undervalued at these market caps, given the user activity on both platforms.
SushiSwap, for instance, is continuously surpassing its record-high monthly volume. Ryan Watkins, an analyst at Messari, said SushiSwap is on track to quadruple the all-time high monthly volume it achieved last month. Watkins explained:
âUniswap is on pace to 1.5x is ATH monthly volume set in Sept 2020. SushiSwap is on pace to 4x its ATH monthly volume set last month. This would produce $6.4 million in earnings for token holders.â
SushiSwap monthly volume. Source: Messari
If the DeFi market continues to grow at the current pace, then major DeFi protocols would see higher cash flows, making them even more undervalued.
Arthur Cheong, a partner at DeFiance Capital, one of the largest DeFi funds in Asia, said on Jan. 13:
âGreat piece from Delphi, further reinforcing our argument that Sushiswap is highly underrated is poised for a big re-rating soon.â
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.