Decentralized finance—better known as “DeFi”—has become a buzzword in the cryptocurrency industry over recent weeks. Migrating financial services to a decentralized platform has been viewed by many as a killer use case for cryptocurrency, specifically Ethereum.
Jon Jordan, communications director at DappRadar, said in an interview late last year: “DeFi certainly is the first category of dapps to attract significant amounts of value… Yes, DeFi is the first killer dapp category on Ethereum.”
According to data provider DeFiPulse, the cumulative value of tokens locked in DeFi applications has surged from $1 billion on Jun. 15 to $1.65 billion on Jun. 26—growth of 65% in eleven days.
Simultaneously, the prices of tokens related to this cryptocurrency sector have seen rapid growth.
Taha Zafar, a crypto analyst, shared the table below on Jun. 18, showing Bitcoin’s performance in comparison to DeFi tokens such as Aave (LEND), Kyber Network (KNC), and Maker (MKR).
The data indicates that while Bitcoin is up 80% in the past three months, DeFi tokens have done even better, registering performances in excess of 100% over that same time frame.
Although DeFi is still in vogue, analysts expect Bitcoin to experience a rally once this cryptocurrency market segment undergoes a necessary correction.
How DeFi Can Boost Bitcoin
After surging by over 150% from March’s lows, Bitcoin has stalled in the $9,000s. Since early May, the leading cryptocurrency has traded in a tight range from $8,500 to $10,000, barely deviating from these levels.
The chart below from crypto trader Josh Rager depicts Bitcoin’s lack of momentum.
It’s a much different story for DeFi tokens, which have strongly outperformed Bitcoin over recent weeks as shown in the table above.
Even today, on Jun. 26, CoinMarketCap reports that six out of the ten best-performing cryptocurrencies in the top 100, are DeFi focused.
Yet the higher these tokens rally, the more Bitcoin could gain once DeFi goes through a correction.
Kelvin Koh, a partner at cryptocurrency advisory and investment fund Spartan Group, observed on Jun. 9 that once “smaller altcoins” reach valuations that are deemed frothy by investors, Bitcoin will experience strong capital inflows. Referencing the strength of tokens such as MKR, LEND, and their contemporaries, Koh said:
“We have seen a major re-rating in many of the smaller altcoins (esp DeFi ones) in the past 4-5 weeks while BTC has been range bound. At some point, the valuation of these alts will start to look frothy and the capital will…