Will DeFi Have Another Hype Cycle?

Could DeFi have another big moment in the near future?


Hey DEFI TIMES community,

NFTs are in the spotlight of everyone's attention. They are the first crypto app ever to reach the mainstream. Right now, I'm as excited as never before about NFTs, and I genuinely believe they are revolutionary.

However, as this is a DeFi-focused newsletter, I'm currently thinking about whether DeFi could have another hype wave soon - similar to summer 2020!

DeFi influencers (including me) have tried to meme the term DeFi Summer 2021. But apparently, DeFi Summer turned out to be NFT Summer! =)

The question now is whether DeFi could have another bright moment soon!

To answer the question...

Let's first explore the nature of crypto hype cycles in general.


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About Crypto Hype Cycles

In crypto, we see the same pattern all over again. One particular niche dominates the market sentiment for some time. Then a bubble emerges… which ultimately pops at some point.

In summer 2020, it was DeFi.

In early 2021, people were excited about Bitcoin, hard money, and institutions' putting bitcoin on their balance sheets.

In mid-2021, retailers were going crazy about meme coins. Gas prices were skyrocketing because people were aping into the latest token - with no utility at all!

And now, everything's about NFTs. Wherever you go, you hear people talking about Non-Fungible-Tokens. Your best friends stay up late to catch an NFT drop from their favorite influencers.

And that's fine! In crypto, we always have hype cycles. But nobody can deny that these cycles come to an end at some point. Mostly, it happens when market participants start losing their minds. DeFi summer 2020 is the perfect example: It all started very slowly when Compound introduced yield farming. In addition, we had the first projects (like Kyber) launching cash-flow-producing tokens. The KNC token lets users earn a piece of the protocol's revenue.

The pattern is always the same: First, developers build great stuff. Then, people get excited and tell their friends about it. As a result, everyone makes money, which leads to more companies trying to make short-term gains. 

That's how you know the hype cycle comes to an end. In DeFi summer, the top signal was "food tokens." Whenever you see ridiculous products dominating the market sentiment... it's time to get out!

NFTs Are At the End of the Market Cycle

The same thing is happening with NFTs right now. Don't get me wrong…  I love NFTs, and I believe they will change the way we present ourselves in the metaverse.

But NFTs are in an obvious bubble right now. Remember the hype cycle pattern:

  1. World-changing products enter the market

  2. People get excited

  3. The market sentiment shifts from long term thinking to short term gains

  4. Ridiculous products dominate niche

  5. The bubble pops

It all started with CryptoPunks. CryptoPunks have been around for years now, and they are truly changing the way we identify ourselves on the internet. They are the faces of the metaverse. If you want to dive deeper into punks and understand what they mean to the Ethereum community, then I highly recommend checking out this interview I did with Michael Tant:

I believe CryptoPunks are revolutionary, and they will be around for many years to come.

But in the last few weeks, the NFT hype got out of control. Too much useless stuff is being traded. Just go on OpenSea, and after some time… you will inevitably stumble upon invisible NFTs!

INVISIBLE NFTs… wtf?!

That says it all, I guess!

In my opinion, NFTs are in stage four. And it won't be long before another crypto hype cycle comes to an end.

History doesn't repeat, but it rhymes.

Will DeFi Have Another Hype Cycle?

The question is, what comes after NFTs? We know that crypto attention usually moves in cycles. Something else could replace NFTs when the cycle ends.

So what is next?

Well, there isn't a lot of stuff to choose from. In my opinion, DeFi is way overdue to have another bull run.

Why?

Many reasons come to my mind, but the most obvious one is that people don't care about DeFi anymore since NFTs have entered a "bubbly territory." Just take a look at the Google Trends chart.

Since May 2021, Google searches for "DeFi" have fallen by over 50%...

I do not doubt that interest in DeFi is set for another all-time high soon. What we are doing is nothing less than changing the world. We are revolutionizing the financial system… building globally accessible, fair, and open financial services for everyone!

But we need an accelerator… something that speeds up the next big DeFi wave!

And what could be better marketing than fast, simple, and scalable transactions? In my opinion, the next DeFi wave won't happen on the Ethereum main chain. It will take place on other L1s.

We are set for another DeFi wave - but not on Ethereum!

To me, it has become clear that Avalanche, Solana, Cosmos, and others are most likely to kick off this next DeFi bull run.

When it comes to DeFi, most eyes are on L1s right now. It all started with Avalanche launching its $180 million incentive program.

They announced that Aave and Curve, two major DeFi blue chips, are deploying their protocols to the Avalanche mainnet.

At the same time, Solana's price is exploding.

The Cosmos ecosystem is expanding as never before… It seems like something is brewing here!

People demand fast and cheap transactions. They currently can't get them on Ethereum; however, they certainly can on Avalanche and co.

The same applies to L2s, of course.

DeFi could have another bull run on fast and cheap transaction layers. Maybe it might take a while for it to finally kick-off.

But one thing is sure: As soon as the NFT cycle ends… another crypto niche is will take over the public’s attention.



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DISCLAIMER: All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the writer, who is not a financial advisor.

Do your own research before you purchase cryptocurrencies. Any cryptocurrency can go down in value. Holding cryptocurrencies is risky.