Aave (LEND)
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Cred (LBA)
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Ripio Credit Network (RCN)
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Synthetix Network Token (SNX)
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News
09 January 2020

Open Finance Fundamentals: 2019 sector returns

This report is part of a weekly series where we will explore the mechanics behind major Open Finance protocols and evaluate them on a fundamental basis. You can view prior reports here.

The narrative behind open financial protocols burst onto the scene in 2019. Over the course of the year we saw new and existing applications (many built on top of each other) begin to find product-market-fit as they filled the need for permissionless “money verbs,” i.e. lending, borrowing, exchanging, leveraging, etc. This generated an overwhelming increase in the amount of discussion and innovation happening in DeFi. While the results are mixed, in aggregate they appear to have positively impacted price.

We looked at how $100 invested at the beginning of the year in an equal-weighted basket across the four major DeFi sectors would have performed. To no surprise, asset management outperformed increasing by a factor of 9x as a result of Synthetix 3,000% annual return. As we've written about previously, Synthetix adjusted their monetary policy in March to provide inflationary funding to stakers on their platform in order to incentivize the creation of synthetic assets. Evidently this worked, as usage skyrocketed and the value of SNX increased concurrently. To add to the returns of asset management protocols, Numerai increased 170% after leading crypto funds Placeholder and Paradigm invested $11 million to help build the Erasure protocol, a marketplace for high-quality data feeds.

The second-largest returns were in prediction markets and oracles almost entirely a result of Chainlink which announced a handful of partnerships throughout the year including big names such as Google cloud. Lending was more balanced with positive gains from Ripio, Aave, and Cred as credit markets seem to have found the strongest use case within DeFi. Lastly, decentralized exchange tokens have underperformed with the exception of Kyber. This could be a result of Uniswap proving that a token is not a necessary component of a DEX, and on the contrary merely adds friction for users.

Our personal thesis is that there is tremendous room for growth in DeFi, however, whether or not that accrues value to underlying tokens is still a question. As the data suggests, picking winners in 2019 was very difficult as a few outsized returns comprised the majority of gains and were often a result of hard to predict token restructuring or fundraises. While we don't know what the return distribution for 2020 will look like, we have confidence there will be growth in existing markets as well as new financial primitives released that could prove vital to the future of DeFi.

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Newsletter
02 March 2020
3 coins to keep an eye on | Issue #71
The move we've been waiting for finally happened last week, as BTC plunged to close 14.48% below its open. The trendline through the consolidation zone around $8475 provided a temporary bottom, but will it hold? The altcoin marketcap crashed alongside BTC, losing 18% from $106 to $87 billion during the week. While we wa...

3 coins to keep an eye on 👀