May 28, 2021, 8:46AM EDT
• 7 min read
How DeFi reacts to market volatility: liquidation performance and valuation reflexivity
- During the period starting from May 12th, many DeFi tokens dropped 70%+ in prices. The Block’s DeFi index dropped from 914% to 416% in 1-year performance.
- Unlike in March 2020, when there was a similar drop in prices, many of the largest DeFi protocols performed better thanks to increased liquidity and scalability.
- DeFi protocols have highly reflexive valuations — i.e. P/S ratios and other metrics can look better when prices are increasing — because the primary use case is speculation on the success of crypto.