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Index Cooperativ, the issuer of the governance token INDEX and a decentralized, autonomous asset manager, recently noted that there are three major DeFi use cases in which the sector has proven itself during this bear market. As most people are likely aware, the bear market, which is still strong today, started last year, roughly around November 11th. That’s when the crypto industry peaked, and after that, the prices have been crashing down quite heavily.
During the current bear cycle, DeFi has proven itself in three areas, according to the project. These include decentralized stablecoins, overcollateralized lending protocols, and DEXes.
Three major DeFi use cases that have proven themselves this cycle are
+ Decentralized (non-algorithmic) stablecoins
+ Overcollateralized lending protocols
+ Decentralized exchanges
What else would you add to this list? pic.twitter.com/XwRMK9EUO1
— Index Coop 🦉 (@indexcoop) July 15, 2022
The project spoke more about this in a blog post, where it noted that, despite experiencing price losses, DeFi still managed to continue working in an orderly fashion while centralized lenders collapsed.
DeFi resisted the bears
Index Cooperativ noted that the second quarter of the current year has brought a significant shakeout in crypto markets. Around May 1st, Ethereum was trading just above $2,700, while the DeFi Pulse Index was around $150. In the weeks that followed, Ethereum went below $900, while DPI sank to approximately $55.
The project explained this by noting that macro markets in risk assets all across the board related to inflation and the reversal of the central bank policy in the US. However, when it comes to crypto, there was additional downward pressure on digital assets. Terra collapsed due to its UST stablecoin losing its peg, and the investor confidence was severely shaken.
Then, there was a crypto liquidity crisis after reported problems with crypto lending firm Celsius and a hedge fund known as Three Arrows Capital, which pushed the prices even lower around a month ago, on June 18th. It also didn’t help that platforms such as Celsius, which are not really a part of DeFi, made themselves look like they are, further shaking the confidence in the DeFi sector.
The future of DeFi is challenging but promising
But, despite all of that, DeFi still managed to prevail. However, there is one thing that many have noticed and that is the fact that Curve Finance was not included in DPI, and the project’s post explained that the exclusion is not a qualitative judgment on the project. In fact, Index Cooperativ is quite impressed with Curve and what it accomplished. Its locking mechanism, however, made it difficult to keep Curve in a passive index, which is why it had to be excluded.
As for the DeFi sector, the project noticed that it seems like things broke down around DeFi, without damaging the sector itself. While everything centralized around DeFi broke, DeFi itself managed to pull through unharmed. There are still challenges regarding the sector, especially when it comes to tracking DeFi, but the DeFi Index managed to remain resilient. And, since DeFi has now existed during extremely strong bear and bull markets alike, it will be easier to predict how it will react in the future, as well.
To learn more visit our Investing in Index Cooperativ guide.