If you’ve followed the crypto market over the past months, you’ve likely noticed what many others have: a majority of the best-performing altcoins are based on decentralized finance (DeFi).
The image below from crypto analyst Taha Zafar depicts this trend well. While two weeks old, the table shows that as of the time of his analysis, DeFi coins were going parabolic.
Bitcoin had posted a 90-day gain of 81 percent while Aave, Kyber Network, Loopring, Bancor, Maker, and Melon have all posted gains in excess of 100 percent.
DeFi-focused coins not mentioned but have also gone parabolic over recent months include Chainlink, Synthetix, Compound, and Balancer.An Ethereum DeFi bubble?
With the strong outperformance of these assets, many have started to “cry” bubble or at least have begun to argue that valuations are getting frothy.
Weiss Crypto Ratings, market research firm Weiss Ratings’ cryptocurrency division, wrote on DeFi’s “ludicrous” growth:“DeFi is one of the most exciting things going on in crypto right now, but the idea that sector will decouple from the rest of the market is ludicrous. Eventually, the mania will end, and DeFi will trade in line with the rest of the market.”
A venture capitalist, Julien Thevenard, also shared this data below on Jun. 21, lending to the idea that Ethereum’s DeFi sector might be a bubble currently in formation.
The coins of DeFi protocols are trading at absurd price-to-earnings (PE) ratios of 100 to 4,360.
While coins are not exactly like shares of traditional companies, value investors often avoid stocks with extremely high PE ratios. For further context, Investopedia reports that the average historical PE ratio of the S&P 500 has been 13~15.Compound valuation is clearly high compared to its earnings. This is a bet on:– future vote to share earnings with COMP holders.– assets locked to explode. Worth putting into perspective vs other networks ( $BNB $LEO $MKR...