Boom and bust: How are Defi protocols handling the bear market?
Decentralized finance (DeFi) has been one of the fastest-growing sectors in the crypto space since its emergence in 2018. However, like many other sectors, DeFi has seen a negative impact in the current bear market.
While 2022's downturn has taken its toll many DeFi projects — and the cryptocurrency space in general — some continue to build.
Bear markets, while difficult for investors, can spark game-changing breakthroughs in the industry, and a new era of creativity seems inevitable if past events are any indication.
This leads to the question: Which protocols will usher in DeFi's next generation of technological advancement, and which won't?
The fable of the ant and the grasshopper may give some indication.
While the ants are busy storing food for the winter, the grasshopper is busy playing his fiddle and singing away the summer. Finally, when winter arrives, the grasshopper goes to the ants for help because he is freezing and hungry. Unfortunately, the ants don't want to help him and tell him that he should have spent his time getting ready for winter instead of wasting it on other things, so he's on his own now.
The moral of the story is that it pays of to make diligent use of ones times in order to prepare for the future.
Similarly, many projects that fueled the euphoria that led up to the present market downturn did not significantly advance the underlying technology of DeFi. They employed over-leveraged tokenomics to concentrate on cash flow creation instead.
So, it seems reasonable to think that the protocols focused on hype and profit are the most likely to fail during a bear market, while projects focusing on creating real user value are more likely to survive.
John Patrick Mullin, co-founder of SOMA.finance, a
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