The pullback in the value of Yearn.finance and Aave signals that the DeFi market may be oversold but increasing revenues of the top projects suggests otherwise.
Over the last month the crypto market has seen a significant amount of volatility as a 6-month altcoin bull market abruptly came to an end with the most recent Bitcoin (BTC) price rejection at $12,000.
At the same time, the DeFi sector saw an amazing run as the total value locked in DeFi platforms surged above $10 billion but at the time of writing the sector is in the midst of a mild correction.
As reported by Cointelegrah, when Bitcoin (BTC) and Ether (ETH) started to pull back in late September, DeFi tokens crashed in tandem. Then U.S. President Donald Trump’s unexpected COVID-19 diagnosis put additional pressure on the DeFi market.
Despite this, Maker (MKR), Uniswap (UNI), Yearn.finance (YFI), and other decentralized finance (DeFi) tokens saw their values plunge in the past two weeks. Yet, various data points show that the fundamentals of major DeFi tokens remain strong.
Most notably, Maker, Uniswap, and Aave saw their revenues spike by 130% to 440% within the past 30 days and this occurred as the prices of their underlying tokens fell substantially.
Major DeFi tokens may be oversold
It is difficult to measure the value of DeFi projects based on fixed metrics because each is structurally different but the two most widely utilized metrics are revenue and total value locked (TVL).
Revenues show how much capital a DeFi project is making from their products and it is an efficient metric for gauging general user demand and market sentiment.
The TVL shows how much capital is locked in the DeFi protocol, typically demonstrating investor confidence along with the project’s share of the market. TVL is also loosely associated with the liquidity and volume of the various staking pools.
As shown in the chart above, in the past 30 days the revenues of major DeFi protocols soared. Yet, the price of the underlying DeFi tokens plunged by 20% to 82%. For example, Maker dropped by 24% in the last 30 days but in the same period it recorded a 449% increase in revenue.
If a project’s TVL is stable and the revenues are increasing, a major price plunge likely signifies extreme caution in the DeFi market. Similarly, Uniswap and Aave recorded a steep price slump, while they both recorded over a 235% increase in revenue.
Jeff Dorman, the chief investment officer at Arca, explained that fundamentals do not necessarily move with the price. Citing the revenue change of DeFi protocols in contrast to token prices, Dorman wrote: