DeFi Pulse Index Monthly Update - January 2021
$DPI delivers 172% gain in January, outperforming ETH and BTC.
January was very kind to DeFi tokens and, by default, the DeFi Pulse Index (DPI). Riding the wave of DeFi outperformance, DPI delivered a superb month with a gain of 172% and even more impressive 400% return over the last three months.
Looking at some other metrics, the upside and downside capture ratios have improved significantly over the last month. That shouldn’t come as a surprise, given the strong period of DPI outperformance. Specifically, the resilience of DeFi tokens amid multiple sharp drops in the BTC price has led to a marked improvement in the downside capture ratio against BTC, from 118% to 55%. For the uninitiated, upside capture indicates, on average, how much of a price move up or down is captured by the token you are interested in. For example in the table below, DPI is shown to move up $0.76 for every $1 of BTC price gain.
Turning our attention to the underlying tokens, a stellar month saw even the smallest gainer, YFI, up over 30%. This is not unexpected, given the way the crypto market tends to behave during bull cycles. Typically Bitcoin goes first, followed by Ethereum, and finally, the smaller cap ‘altcoins’ outperform both. We saw BTC reach a new all-time high at the start of January, followed two weeks later by ETH which promptly set the stage for a tremendous altcoin run going into the end of the month.
This time around though some things are certainly different. While a few of the leftover projects from 2017 have seen a recent price pump, it was not sustained. Top 10 projects like XRP and Bitcoin Cash flared and very quickly died back down. What we have seen instead might be termed 'DeFi season', where projects providing real utility and with verifiable revenue streams have seen a profound re-rating based on fundamentals.
DPI Performance Contributors
UNI: In January, Uniswap changed their Twitter handle, launched a new front-page for their website, oh and surpassed $22b in trading volume for the month. Possibly enough to justify the 241% gain in itself, but the market also seems to be anticipating the launch of Uniswap V3. The majority of UNI's gains came through in the month's final week as the GameStop controversy highlighted the benefits of decentralised exchanges. Despite the price appreciation, UNI continues to have one of the lowest P/S ratios, according to Token Terminal's dashboard.
Since our last monthly update, Uniswap also passed their first successful governance proposal, V0.1 of a grants program. However, the first round of applications doesn't close until Feb 28th, so no funding has been deployed yet. All in all, January was a relatively quiet month for the most spectacular performer in the index, which now accounts for over 31% of DPI's composition.
AAVE: Following closely behind UNI, AAVE experienced a 239% gain over the month - what a way to celebrate the protocol's first birthday. There is now over $3.3b locked in Aave, split between V1 and V2 versions, up from $3m just 12 months ago. In the first 4 weeks of 2021, the protocol saw earnings average around $1.8m per week, primarily from interest on loans, with flash loan fees continuing to grow as a portion of revenue.
In terms of governance, the community voted to increase staking rewards from 400 to 550 AAVE per day to reflect the fact that slashing would be formally switched on for stakers in the safety module.
Notable Mention - MKR: Sleeping DeFi giant MakerDAO finally woke up during January, after trading fairly flat through the mini bull run in September last year. The protocol started raising stability fees for various vaults, leading to an increase in revenue. This, coupled with a spate of votes to increase debt ceilings to match demand, put Maker in a position to be earning significant income and the market appears to have caught up to that fact. Total value locked went swiftly from $2.5b to $5b during the month, and the MKR token price went with it, up 151.8% in the same period.
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