As some big-name decentralized finance (DeFi) tokens falter, a crop of new projects has emerged that are capturing strong offers thanks to their aggressive yield farming programs, generous airdrops, and significant technical advancements.
It is a set of atypical projects that advance both in price and in fundamentals and that have led to a cryptocurrency analyst, mewny from eGirl Capital, to qualify them as DeFi’s “Generation 2”.
feels like theres a gen 1 and gen 2 of defi tokens now
the former is stagnant and the latter is pamping
has nothing to do with fundamentals. its all psychological
– mewny (@ mewn21) March 6, 2021
There seems to be currently a Generation 1 and Generation 2 Defi tokens.
The first is stagnant and the second is on the rise.
It has nothing to do with fundamentals. Everything is psychological.
Mewny, who in an interview with Cointelegraph defined eGirl Capital as “an organization that takes itself as a very serious joke,” says Generation 2 tokens have garnered a lot of attention due to their well-cultivated communities and clever token distribution models, which lead to a “recursive” loop of price and sentiment.
“I think in terms of market interest it’s more about looking for novelty and narrative at this stage of the cycle. Fundamental analysis will be more important when the market cools down and profit is the only underpinning of valuations. Fashion tend to revolve around grassroots projects that have carved out a category for themselves in the marketplace. “ Mewny said.
Although investors may be eager to get into these new fast-growing tokens, It is worth asking yourself what these projects are doing, if they are sustainable and, if not, how long do they have to live?
Pump or basics?
The Generation 2 phenomenon resembles “Summer DeFi” last year, full of “DeFi stimulus check” airdrops, large percentages of annual return and rising token prices, as well as a dreadful wave of hacks, robberies and “rugpulls”.
However, mewny says that there is a population of investors that emerged from that period that continually seeks technical progress rather than shooting stars.
“There are fewer fast ‘me too’ projects in DeFi. An investor may think that those projects never attracted much liquidity in the first place, but they overestimate the wisdom of the market if that is the case. They have attracted and do attract liquidity, especially from participants. that they felt excluded or that they were late to the first projects, which has given space to legitimate projects that have not stopped developing despite the change in market focus. “
One of these Gen 2 projects that is attracting liquidity is Inverse Finance. After launching a yield farming program for an upcoming synthetic stablecoin protocol, Inverse Finance’s DAO narrowly voted for the INV governance token to be tradable. As a result, the previously worthless 80 INV airdop is now priced at over $ 100,000 – probably the most lucrative in Defi’s history.
Another star from generation 2 is Alchemix, one of the first investments announced by eGirl Capital. The Alchemix protocol also focuses on a synthetic stablecoin, alUSD, but generates the stablecoin through collateral deposited in the performance vaults of Yearn.Finance. The result is a token-based stablecoin loan that pays for itself, a new model that eGirl believes could become a standard.
“eGirl believes that trading interest with return will be a major first in DeFi. Quantifying and valuing future performance unlocks a great deal of usable value that can be reinvested in the marketplace.” they affirm.
The broader markets seem to agree with eGirl’s thesis, as Alchemix recently announced that the protocol exceeded $ 500 million in total locked value:
It is our one week anniversary today, and wow!
That was fast! 500 MILLION TVL!
Farms: 322.85m pic.twitter.com/FQsezs6s9q
– Alchemix (@AlchemixFi) March 6, 2021
Today we are one week old, and wow!
It was fast! 500 MILLION TVL!
Vaults: 89.4 million
Transmuter: 90.5 million
Farms: 322.85 million
Instead, the governance tokens of many of DeFi’s most popular names, such as Aave and Yearn.Finance, are in the red on a 30-day basis. But even with the iconic names stagnant, the aggregate TVL figure in DeFi, which has been rising in the month, went from more than USD 8.4 billion to USD 56.8 billion according to data from DeFi Llama, progress that is due in part to “Generation 2” projects.
However, DeFi’s dinosaurs, comparatively wrinkled and stuffed, have some vital signs left. There are several major projects that are being updated, such as version 3 of Uniswap, Sushiswap’s Bentobox lending platform, a liquidity mining proposition that is going through the governance process of Aave, and version 2 of Balancer.
These developments could mean that DeFi’s “Generation 2” phenomenon is simply a temporal, intra-industry rotation, and that the “older ones” will soon return to the top. It would be a predictable move in the opinion of mewny, who says that “All DeFi protocols need at least 1 bear market to demonstrate technical strength.”
What’s more, according to mewny some of the signs of market irrationality surrounding “Generation 2” tokens, as well as the broader DeFi space, such as protocols offering three- and even four-digit yield farming, may fade further. sooner rather than later.
“I don’t think it’s sustainable for any project under regular market conditions. Right now we are not under normal conditions. Speculators have for a while propped up potentially unsustainable DeFi protocols.”