Is DeFi a Bubble? Experts Weigh In On Hype vs. Value

Is DeFi a Bubble? Experts Weigh In On Hype vs. Value

Since 2017, the cryptosphere has been associated with the term “bubble” ever since. Nearly every sector of the industry has been called “b” at different times. However, analysts now focus their attention on DeFi, a new area of crypto.

DeFi in general has been hot topic in the past year. These include exchanges, loan platforms and other projects that serve as autonomous hubs for users to access a range of financial services without relying on third parties.

Despite there being a lot of industry hype surrounding the DeFi space, along with whisperings about some DeFi projects being overvalued, it’s only recently that this ‘bubble’ accusation has been so widely applied.

Weiss Crypto Ratings did not go so far as to call the DeFi hype a “bubble”, but they did tweet that the “eventually the mania will end and DeFi will trade in line the rest of the markets.”

Increases in DeFIi 2017 token price could be reminiscent 2017

One thing that has caught the attention of the DeFi community in recent years is the rise in value of governance tokens on certain DeFi platforms. In particular, COMP, which is the governance token of Compound’s decentralized loan platform, saw a nearly 30% increase in its value in just one week.

But, COMP dropped shortly after it rose: After peaking at $372 last month and falling steadily over several weeks, COMP plummeted to $165, a drop of approximately 55 percent. At press time, COMP had recovered to $185.

The rapid succession of booms and busts still left analysts in a daze. Twitter commentator @ThetaSeek said that the Protocol was too valuable, stating that “[…] The Protocol is an AUM company, and AUM businesses are usually valued at 1/3 to 1/4 of the companies AUM.

ThetaSeek stated, pointing out BlockFi as an example. “@realblockfi” is valued at 200M for a company with a total AUM of 650M. He said that this is generous considering Goldman Sachs’ value at less than 1/50th of their AUM.


John Wagster, co-founder of Frost Brown Todd’s digital currency and blockchain industry team, told Finance Magnates that Compound has led to some instability in other parts of the DeFi and cryptos worlds. ThetaSeek stated that COMP’s value should be around $50.

He said that “Since Compound protocol currently rewards markets which lend dollars more than any other tokens,” it is making it difficult to keep those coins’ dollar peg.

Accordingly, “DAI holders who depend on the peg for stability to their other trades may be adversely affected,” he said, adding that “other Yield Farming tokens such as $SNX or $LEND have seen their value dramatically since Yield Farming took place several weeks ago and have likely not reached their true price point.”

It seems that DeFi’s alleged problem with overvaluation doesn’t end there.