The growing DeFi wave

Welcome to this week’s edition of the RHIZOME Wire!

Apples and Oranges

It’s becoming more and more clear that DeFi protocols are becoming the “new” thing in crypto (although “new” may not be the most appropriate adjective, as many have been around for quite awhile). While not fully analogous to the ICO boom of 2017 (at least not yet), the price momentum behind DeFi tokens is starting to raise eyebrows. Unfortunately, it’s also raising poor comparisons.

Here’s a section from an article (which primarily focuses on Balanced and Band) from beincrypto.com, describing the current price environment:

ICON’s native token has been a dead duck in terms of price since the crypto boom in late 2017 when it pumped with its altcoin brethren to an all-time high of over $13. ICX has been trading in a relatively flat line for two years. Today, prices are languishing around the $0.37 level, over 97% down from that ATH.

ICX has actually fallen 14% over the past week and has slid so far down the market cap table that it isn’t even in the top fifty. It seems that nothing can revive this once high-potential token at the moment.

The same cannot be said for BAND though, which has been on fire recently as DeFi FOMO gathers momentum.

Since the beginning of July, when BAND tokens were priced just over a dollar, it has surged a whopping 310% to reach an all-time high of $4.56 last week. A minor pulled back followed but the token is still up more than 20% on the day.

Not only is this obviously short-term thinking, but it’s comparing a brand new asset — at the beginning of a potential bull market (or at least end of a bear market), that has not built any resistance levels and is in the middle of a hype cycle.

This isn’t a judgement of Band (nor praise of ICX), but rather to once again ask crypto investors to zoom out to a broader time horizon. There will be chunks of time where one token does better than another, and vice versa. What matters is what do they both do over the long term.

You’ll likely feel more and more FOMO as DeFi tokens continue to increase in price as momentum and hype continue to build. But it’s probably the same FOMO many (including possibly you) felt in 2017 with the ICO boom.

In the end, pick projects and tokens you believe will have success over the long-term, and try to ignore the short-term narratives.

Speaking of Balanced…

The main point of the article above was to discuss the recent integration of Balanced with the Band protocol, which is another important step in the long-term development of ICON.

When Balanced was first announced, I wrote a fairly lengthy article explaining how it works. Be sure to give it a read if you didn’t catch it the first time.

As I mentioned above, there’s a growing sentiment around DeFi, and it includes some of the characteristics that defined the ICO boom: namely — many people trying to buy up every DeFi protocol they can; and many in the cryptosphere lamenting that DeFi is just a mini-bubble that is luring in unsuspecting investors with promises of high yields and a soaring token price.

As with many things in life, the truth is likely somewhere in the middle. And, ultimately, DeFi does serve a practical purpose, especially when it’s integrated with a pre-existing protocol (such as Balanced with ICON).

When you dismiss all the connotations that come with “DeFi” as you look at Balanced, what matters most (at least in my eyes), is the fact that its primary goal is ultimately to provide a more stable payment mechanism within the ICON ecosystem. Here’s a section from my earlier article:

Let’s pretend you’ve been fortunate enough to receive a grant for a project you are building on the ICON network. At the time of your proposal, the cost of ICX was $2, your monthly costs are $10,000, and the project should take 6 months. Accordingly, you ask for 30,000 ICX to cover the cost of the entire project.

Under current circumstances, if the price of ICX drops over time, you’ll have a shortfall. If your employees accept payment only in USD and ICX drops to a dollar (a 50% decrease), you’re basically out of luck.

However, if you deposit your ICX as collateral, you can convert it to ICD over time, ensuring you’ll always have enough USD to satisfy your employees.

Similarly, Balanced also offers the ability to help stabilize the ICX market:

Let’s say you have a large ICX position and want to diversify your assets a bit. You want to sell some ICX, but you’re worried about a sale hurting the price of ICX. Instead of selling on an exchange, you could instead put it up as collateral and borrow ICD. You could convert that ICD into fiat or another crypto. Meanwhile, your ICX would end up as collateral on Balanced. You could convert it at some point down the line and get your ICX back, or just ignore it and not ever convert it back. If the latter, you’ve essentially “sold” your ICX without adding selling pressure on the open market (and thus reducing the price).

Both of these are important additions to the ICON ecosystem — and they’re virtually only possible through DeFi. These are what the benefits of DeFi really are — the yields are just a mechanism to provide the incentive for token holders to participate in keeping the ecosystem functioning.


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