Since the summer peak of the DeFi explosion, top Ethereum-based tokens from the space have dumped considerably due to becoming overvalued too quickly, and Bitcoin suddenly stealing up any flowing capital share.
But while this happened, the total USD value locked in DeFi applications continued to climb right along as if nothing ever happened. Is this a sign that the decentralized finance space is fundamentally sound, or is this a recipe for disaster waiting to happen?
Top DeFi Tokens Come Tumbling Down, Total Value Locked Defies Gravity
As well as Bitcoin has performed, getting its footing and potentially gearing up for a big bullish breakout, 2020 has been the year of Ethereum and DeFi.
These Ethereum-based ERC20 tokens have stolen the show when it comes to the crypto industry lately. Prices rocketed while the total value locked in DeFi applications ballooned. But in the summer months, the sizzle started to slow, and valuations came down.
Related Reading | DeFi Overtakes Ethereum In The Media, Data Shows
Yearn.Finance, Aave, Uniswap, and several others nosedived 60% or more from their summer highs, but something interesting has happened along the way.
While asset valuations came down, more money has been pumped into DeFi applications, according to the continued growth in Total Value Locked.
DeFi tokens fell hard, but TVL continued to climb. What does this say about fundamentals? | Source: YFIUSDT on TradingView.com
Timber: TVL Could Come Down Too If Decentralized Finance Coins Can’t Recovery Quickly
TVL keeping pace even while valuations come back to reality is a sign that fundamentals are strong in the category, and it could suggest that the correction is healthy and could lead to far higher prices in the future.
Or it also could suggest that the DeFi trend itself hasn’t yet reversed, even though asset uptrends have.
Related Reading | Trader Warns Of “Capitulation Volume” And “Heavy Downside” Across DeFi
Top crypto analysts warn that despite the major drawdown in DeFi tokens, there has yet to be capitulation volume in pairs related to Yearn.Finance, Uniswap, and more.
Either that capitulation volume never comes, because prices pick right back up and continue to spike or TVL growing could also be a recipe for disaster.
If the DeFi TVL starts to come down, and that chart’s parabola breaks, it could – like any other chart – see a major correction. Parabolic assets drop as much as 80% when the advance is finally broken. Could the same statistic apply to TVL?
Featured Image From Deposit Photos, Charts From TradingView.com, DeFi Pulse
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