DeFi boom leaves former altcoin darlings in the dust — But for how long?

The rapid popularity and investment growth observed in the Decentralized Finance (DeFi) sector has reflected heavily on the price charts with DeFi and yield-related tokens like Yearn.finance (YFI), Aave (LEND), and others rallying to their all-time highs in 2020. YFI alone has surged 10x since listing.

In fact, most high-profile DeFi-related tokens have outperformed Bitcoin (BTC) and other altcoins by a long stretch. Even governance and infrastructure projects like Chainlink (LINK) and UMA, the latter of which became one of the largest DeFi protocols in September, were eclipsed by DeFi tokens.

As so, with all eyes set on DeFi projects and smart contract platforms like Ethereum (ETH) and Cardano (ADA), a few sectors in the cryptocurrency world appear to have been left behind. Most noticeably, coss-payment platforms like XRP and Stellar (XLM). 

Comparison of profits and losses since December 2018. Source: CaneIsland Digital Research

Although smart contract platforms like EOS have made modest gains, it has failed to keep up with competitors like Ether, which has been the epicenter of the 2020 DeFi craze (as most DeFi-related tokens are Ethereum ERC20 tokens).

Ripple loses its allure

Among the top-10 coins by market cap XRP has been one of the worst performers in 2020, having recently lost its position as the third biggest altcoin to Tether (USDT). Ripple is currently the fourth biggest cryptocurrency with a market capitalization of roughly $10.6 billion. 

While XRP has risen 20% since the start of 2020 it lags far behind Bitcoin and many other altcoins. In Binance’s Q2 report, the exchange revealed that XRP is the fifth worst-performing crypto on the platform.

There have also been multiple public issues with the project such as the long-lasting class-action lawsuit regarding the marketing and sale of the XRP token. Ripple is also facing a copyright-related lawsuit over the use of the “PayID” brand. Most recently, Santander, one of Ripple’s key bank partners, expressed concerns when it comes to adopting One Pay FX, Ripple’s international payment network.

While things look grim for XRP, there are a few positive signs for the project, such as the growth of On-Demand Liquidity which has processed over $2 billion in transactions since launch and has seen an 11x growth in the first half of 2020, when compared to the first half of 2019. 

There are also plans to move closer to the DeFi space with XRP partner Flare Networks announcing a project that aims to bridge the Ripple and Ethereum blockchains.

Privacy coins were also left behind

Cross-border payments do not seem to be a hot topic in crypto at the moment, given the speculation around DeFi and the growth in stablecoin use. However, there are other pockets that have also failed to perform as well as DeFi or even as well as Bitcoin, including privacy coins.

According to data from Messari, a digital asset data company, Bitcoin has outperformed many of the privacy coins in the market, although popular coins like Monero (XMR) and Zcash (ZEC) have seen modest gains in comparison to Bitcoin in the last 12 months, roughly 5% and 20% respectively. 

The tables will turn when the DeFi bubble pops

While DeFi-related tokens have generated accentuated gains for holders in 2020, the craze has also generated a host of clone and meme projects that are capitalizing on the hype. 

Some tokens in the DeFi sector have taken massive hits to their value, including the SUSHI token, whose main developer market sold a significant number of tokens in what some people believe was an exit scam. Another DeFi meme-token which made media waves recently was Hotdog. The food-themed token lost 99% of its value in the span of 5 minutes, leaving many investors holding worthless bags of hotdogs.

While DeFi has been leaving other sectors in the cryptosphere behind, users should be aware that many of these new projects have very little to offer, being reminiscent of the ICO space in 2017. 

As so, the DeFi sector may soon follow the same footsteps, especially as the Ethereum blockchain continues to be overwhelmed. If this happens, it is likely that profits will go back to Bitcoin to fiat/stablecoins or to other sectors of crypto that have been left out of the current hype.

On the other hand, DeFi has shown few signs of slowing down anytime soon, especially as high-yield automated strategies continue to be developed. 

In the future, it’s possible that a portion of these profits will trickle back into Bitcoin and altcoins as investors look for ‘safer’ assets to earn interest in. Thus, it might not be necessary for non-DeFi coins and networks to develop new use cases to entice investors.