Welcome to the first article in our December series! In it, we will highlight the trends that defined this year. We doubt that anyone will forget the crazy DeFi performance this summer and each piece of Ethereum news on the long road to Ethereum 2.0. In this article, ChangeHero overviews the rise of DeFi tokens and Ethereum performance in 2020.
Ethereum Performance in 2020
Let’s first see how Ethereum has been doing this year. According to the DappRadar report, Ethereum-based projects make up for 96% transaction value in DeFi. Ethereum performance in 2020 and this sector of crypto-economy are closely related.
On the year-to-date chart of Ethereum price history, there is a clear uptrend. The price only dropped significantly in March, following the rest of the market and the global stock market crash. Ethereum broke the $200 ceiling in April, fixed above $300 in July, managed to reach $400 in August and stay there. In September through October it was trading between $300 and $400, but early in November it accelerated its growth and scored a yearly high of $610.51. Some upticks correlate with Ethereum news about the network upgrade development. More on that in the following section!
Right now, on the day of the launch of Ethereum 2.0, ETH is worth $605.47.
Ethereum Updates in 2020
All year long, the appreciation of Ether was going hand in hand with the Ethereum news about Ethereum 2.0 development. Is Ethereum likely to rise even further? Absolutely! If the launch of the mainnet goes successfully, this large update will surely create a positive sentiment around the currency. That alone is enough to create demand for ETH and push the prices higher.
2020 DeFi Performance
In the second half of 2020, decentralized finance surged to previously unimaginable heights. The total value locked (TVL) increased more than by 380% in comparison with Q2 2020. Following the demand, Ethereum performance in 2020 showed positive results.
Why is DeFi popular in 2020? One of the trends that brought massive attention and even hype to this sector is yield farming. This activity revolves around automated loans and deposits, which reward the users who provide liquidity to the market. By redistributing deposits to the markets that offer higher reward, users gain even higher yields than from a passive income.
Another trend that helped DeFi gain incredible popularity is liquidity mining. In that case, the users are given incentive in the form of special tokens for providing liquidity. One of the best known examples of this was Compound. For depositing liquidity, the protocol users would gain not only interest but also COMP tokens as a bonus. This also helped attract users to the protocol and increase its liquidity.
Most Popular DeFi Projects and Highlights
At the moment of writing, according to the DeFi Pulse service, the top three projects by TVL are Maker, WBTC and Compound. Considering the purposes of these protocols, it is clear that yield farming still drives the popularity of the DeFi sector. Maker provides users with DAI, which together with WBTC can be used as a liquidity deposit in Compound and other lending protocols.
As the data from the previously mentioned DappRadar report has it, DEX (decentralized exchanges) make up for about half of the activity in the DeFi sector in Q3. The most popular DEXs (by TVL) are Uniswap, CurveFinance and SushiSwap. The latter is a fork protocol of Uniswap, and due to the competition between these two, the ratings and TVL of both are not as large as other top protocols. Active trading on DEXs drove the gas prices high but also proved extremely positive for Ethereum performance in 2020.
Top-10 DeFi Coins 2020
Almost each protocol has a token representing it, be it a governance or utility token. Due to a meteoric rise in DeFi performance in Q3, almost all of them have gained in price. Here are the Top-10 DeFi tokens sorted by capitalization, according to CoinMarketCap. The growth is calculated using the earliest known price of the token in 2020 and the price at the moment of writing.
[table id=17 /]
*For DAI and Wrapped BTC, the change % is taken for capitalization instead of the price
Chainlink is often considered a DeFi token due to a high adoption of the oracle network in various DeFi projects. For example, AAVE, Synthetix, Ampleforth and Celsius Network rely on Chainlink oracle data feeds. It is fifth cryptocurrency by capitalization, and definitely one of the biggest winners among top altcoins to watch in 2021. In comparison with the earliest price in 2020, it has appreciated by 650.27% at the moment of writing.
Wrapped Bitcoin is a token issued on Ethereum, the price of which is pegged to the price of BTC. Its main purpose is to act as a replacement for Bitcoin in DeFi. Thanks to WBTC, it is possible to deposit BTC in DeFi protocols and trade it on decentralized exchanges. Due to the rise of DeFi this year, its capitalization has seen a meteoric rise by 54,125% (yes, this is not a typo — fifty four thousand percent).
DAI is another DeFi-focused stablecoin that grew by a whopping 974% in capitalization, surpassing $1 billion in Q3 2020. Although Tether is seeing more use, DAI is truly a decentralized project, owing its existence to the MakerDAO. Its protocol currently accumulates the most TVL in DeFi.
Uniswap is one of the main characters in this year’s rise of DeFi. It participated in three of the four trends described by ConsenSys in their report. These trends are the rise of automatic market makers (AMM), governance tokens and “weird DeFi” (a concept which parallels Weird Twitter, full of absurdist humor and Internet subculture). UNI is the governance token for the Uniswap AMM protocol. The lack of the listing process allowed virtually anyone to create a market for their token, and many joke and meme coins gained a spotlight. Despite its short history, it has already grown by 240,9% in 2020.
AAVE lending protocol is one of the most popular DeFi protocols, before and after the DeFi boom alike. Recently, its old LEND token has finished migration to the new token AAVE in the 100:1 ratio. Now the voting power for AAVE protocol proposals is represented by AAVE token. Since the start of migration in October, AAVE is up by 43.08%.
Yearn.finance’s YFI token became famous for being one of the few assets that are more valuable than Bitcoin. It owes its price to its scarcity and the popularity of the protocol (#10 by TVL). The token was launched not long before the introduction of yVaults, which generate revenue in the form of transaction fees and gas, and distribute it to YFI token holders. YFI’s return on investment is currently 2,427%.
MKR is the governance token (represents voting power) of the already mentioned MakerDAO protocol. It is also used as a secondary resource to back DAI’s value. Despite the difficulties that MakerDAO faced in 2020 (such as a voting exploit or DAI collateral crash in March), MKR rose in price by 25.93%. Read more about it in our Maker Guide for Beginners!
Synthetix’s SNX token is one of the first DeFi tokens to enter the scene. Synthetic protocol enables the trading of derivatives — in this protocol you can perform trading of the assets you don’t own. These derivatives are ERC-20 tokens that represent stocks, cryptocurrencies and fiat currencies. SNX acts here as a collateral, so it is the protocol’s utility token. At the moment of writing, it is worth 294.3% more than at the start of 2020.
Compound’s COMP governance token led the governance token trend in Q2 and yield farming trend in Q3. Users came up with inventive ways to utilize several protocols to take a loan, deposit it into Compound and still gain revenue. The token was introduced in June, and since then gained 10.34% in value. Read more about Compound and COMP in ChangeHero’s guide!
Finally, the UMA token is the governance (voting) token of the protocol with the same name. UMA stands for Universal Market Access, and the protocol lets anyone issue synthetic derivatives on the Ethereum blockchain (like Synthetix but without the need for a utility token). The UMA token’s return on investment is 590.52% at the time of writing.
- Ethereum performance in 2020 is spectacular, it has gained 376% since the opening of 2020. With the advent of Ethereum 2.0 the prospects look quite favorable;
- As a result of the DeFi craze, a significant portion of the user base was exposed to this innovative sector of crypto economy, so in the end DeFi performance is also at its highest (TVL is up by thousands percent);
- Are DeFi tokens worth buying? Despite the craze calming down, DeFi is highly lucrative for the crypto-savvy investors, especially in the current Bitcoin rally. The tokens of top protocols have been showing impressive returns so far;
- More legitimate DeFi projects stay around and keep providing value, so DeFi is in a healthy space in Q4 2020.
DeFi and Ethereum performance in 2020 give us a solid reason to be bullish for crypto as a whole. Looking forward to more Ethereum news and DeFi developments next year!
Next week we will continue this series of articles with another recap. Keep an eye on our blog and the updates on our Twitter, Facebook, Reddit and Telegram channel to stay tuned!