Many have thought that volatility in the crypto space is decreasing due to institutional investors. Today we know that that is not true – Ethereum is as volatile as ever and extreme price fluctuations are the order of the day in the Wild West of Decentralized Finance (DeFi). Why on-chain data still makes you optimistic.
The Bitcoin correction of the last few days has once again caused the prices of many DeFi tokens to stumble. On a weekly basis, the “DeFi ETF Token” DeFi Pulse Index (DPI) was able to increase by over 14 percent.
The top performers on the index this week included Synthetix (SNX), Aave (AAVE), Compound (COMP) and Uniswap (UNI). Within the last seven days, all four DeFi heavyweights recorded price gains in the double-digit percentage range.
In addition, the capital managed by DeFi protocols has also grown steadily since the end of June.
At press time, there is a total of $ 54.52 billion in the smart contracts of Ethereum DeFi protocols. While this figure is still well below the all-time high of $ 88.56 billion, the trend still suggests that interest is slowly returning to the market.
Confidence in decentralized applications increases
Even if the Total Value Locked is still far from the last all-time high, on-chain data shows a clear trend: more and more Ethereum is migrating into smart contracts. According to the data from Glass node over 30 percent of all ethers in smart contracts.
This represents a new all-time high, for which, in addition to Ethereum 2.0, decentralized finance is primarily responsible. The development shows that despite the poor price performance of the last few weeks, more and more investors trust decentralized protocols.
DeFi sector undervalued?
Many DeFi tokens have unique properties and some protocols already show a positive cash flow today. Data from TokenTerminal show that several DeFi heavyweights generate hundreds of millions of dollars in log revenue annually.
This fact makes it possible that one can evaluate some projects with standards from the traditional financial world. Let’s take a look at the example of SushiSwap (SUSHI). According to Dune analytics SushiSwap generates just under 3.8 million US dollars in revenue per week. If you now assume that an average year has 52 weeks, you get an estimated annual turnover of almost 200 million US dollars.
Put this value in relation to the average price-earnings ratio (P / E) of an S&P 500 company that is currently at 15.98 then the valuation for SushiSwap is just under 3.2 billion US dollars. Currently, SushiSwap is only valued at $ 1.5 billion.
Of course, this comparison isn’t perfect, and it’s hard to compare a decentralized protocol to a normal enterprise. Even so, the fundamentals suggest that some DeFi tokens are undervalued compared to traditional companies.