DeFi Blue Chips Suffer as More Users Stake Ethereum

Decentralized finance—or DeFi—helped kickstart the 2020 bull run. But fast-forward to 2023 and investors have largely lost interest in the blue-chip tokens like Uniswap and Maker, according to blockchain data firm Glassnode. 

Glassnode said in a Wednesday report the downturn was largely due to Ethereum seducing investors with its new staking feature, which can give returns of up to 4% APR. 

Now investors can earn returns on the cryptocurrency with less risk and more reward, the firm said. 

“It is highly likely that the lackluster performance of DeFi tokens over the last two years is a factor or the emergence of native ETH staking yield,” the report said, noting that the DeFi market cap stands at just 12% of its all-time high in November 2021. 

DeFi is the catch-all term for crypto projects which aim to replace traditional finance by cutting out middlemen and automating processes like borrowing and lending. Many DeFi projects run on Ethereum’s blockchain. 

“Blue-chip” DeFi tokens are the ones with the best reputation, and when the DeFi space exploded in popularity in 2020, investors poured billions of dollars into blue-chip projects like decentralized exchange Uniswap and lending pools like Aave. 

But Glassnode said that the market cap of such projects has shriveled. Why? Because they now need to compete with Ethereum, which can offer steady returns with seemingly low risk. 

This is because the blockchain behind the second biggest cryptocurrency by market cap successfully upgraded in April, allowing investors to safely lock-up their ETH and receive returns for the cryptocurrency they pledged to the network. 

Now, they can earn better rewards—with less risk. “Not only is downside performance and volatility equivalent to ETH, but the upside performance is measurably less,” Glassnode said. 

Blockchain data app Cielo’s head of research, ZoomerAnon, told Decrypt that for “DeFi to remain attractive to users,” they will need to adopt liquid staking—which is available on Ethereum. 

Liquid staking allows investors to have quick access to crypto they’ve pledged by providing them with tokens redeemable for staked assets which they can move around elsewhere. 

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“The battle to reignite interest in DeFi tokens is likely under way, but given the new hurdle rate set by the ETH token itself, it is unlikely to be an easy one,” Glassnode added.