The DeFi market struggles to breathe Gen 2 tokens that are emerging with force. Most of these newly released projects are catching investor’s eyes due to significant offerings.
These offers include generous airdrops, technical improvements, and aggressive yield farming programs. A crypto analyst at eGril Capital, Mewny, tags these potential projects as the “Gen 2” DeFi Projects.
While talking to other crypto experts, Mewny stated that these new projects are doing well because they’re using “clever token distribution models” plus well-cultivated communities. These two combinations Mewny says result in a recurring price-and-sentiment loop.
Many believe that investors seek more novelty and narratives where the DeFi market stands. Mewny says fundamental analysis can relate if the market ceases to be volatile.
He wants the utility to become the backstop to project valuations. According to him, hot narratives only matter to the grassroots projects operating in a unique market category.
But Mewny also encouraged investors to fully analyze these new projects’ sustainability before diving in with both feet.
Gen 2 Tokens Escalate Following DeFi
According to Mewny, the Gen 2 novelty projects are also trying to replicate the DeFi summer occurrences of 2020. Last summer, the DeFi community experienced a lot of soaring token prices, attractive airdrops, and fat yield farming APYs.
Besides rug pulls, numerous hacks, and heartbreaking heists have been an ongoing debate in this particular field. Amidst the craziness, there were a certain group of investors show interest in technical progress instead of shooting stars.
According to the analyst, one of the Gen 2 projects attracting liquidity with speed is “Inverse Finance“. This project launched a yield farming program for a new synthetic stablecoin protocol.
Afterward, Inverse Finance DAO voted to make the governance token a tradable asset, and that resulted in 80 INV airdrop to rise above $100,000. This has become the highest-priced DeFi airdrop since its inception.
The second star in the Gen 2 category is Alchemix Protocol. This is one of the investments that eGirl Capital made. The protocol focuses on a synthetic stablecoin called “alUSD.” Alchemix issues alUSD from the collateral investors deposit into the Yearn.Finance’s yield-bearing vaults.
With such a model, the loan automatically pays for itself, and this eGirl opines might soon become the new standard. Also, it seems that the deFi market is agreeing with eGirl because the protocol has accumulated more than half a billion in its TVL.
Are Gen 2 Projects Sustainable?
Even as the new generation of DeFi projects seems to be making waves, there’s still doubt that they’ll last. However, while the Gen 2s seem to soar, some of the top DeFi projects are finding it difficult to stay afloat. Projects such as Yearn.Finance and Aave are not doing well in their monthly performance.
The good news is that the total value locked in DeFi is rising from $8.4 billion to $56.8 billion, although the Gen 2 projects also contributed to the high TVL.
It’s also important to note that some of the Gen 1 defi projects are not yet losing their grit. Also, some of the major projects are working on updating their services.
Protocols like Uniswap and Balancer are working on Version 3, while Sushiswap is on working on its Bentobox lending platform. With all these going on, it is safe to assume that the Gen 2 phenomena will not last.
It may just be an intra-sector rotation, and the dinosaurs are on their way back to the top. So, just as Mewny implies, these new projects may just be passing through their “1 bear market” that’ll prove if they’re technically sound or not.
Moreover, Mewny believes that all the craziness of triple & quadruple-digit farming yields which characterize these new projects may soon vanish.