The secret of DeFi tokens' returns surpassing Bitcoin in 2020

In the field of blockchain and cryptocurrency, the rise of decentralized finance (DeFi) tokens has undoubtedly become a highlight of 2020, especially in terms of returns, the performance of DeFi tokens has far exceeded the expectations of Bitcoin, the "digital gold". As more and more investors and users join this emerging financial ecosystem, the charm of DeFi tokens is increasing day by day. This article will delve into the average return performance of DeFi tokens in 2020, analyze the reasons behind it, and look forward to future development trends.

First, looking back at the overall market environment in 2020, the global economy was hit hard by the COVID-19 pandemic, and countries have adopted monetary easing policies to cope with the economic recession. Against this background, investment opportunities in the traditional financial market have become relatively limited, and many investors have begun to turn their attention to the cryptocurrency market, especially DeFi projects. According to data analysis, the average return rate of DeFi tokens in 2020 was as high as several hundred percentage points, far exceeding the performance of Bitcoin. Bitcoin's return rate this year is about 300%, while some well-known DeFi tokens such as Aave, Uniswap and Compound have shown several times or even ten times the return.

The success of DeFi tokens is first of all due to their unique decentralized characteristics. Unlike the traditional financial system, DeFi automates financial services through smart contracts, and users can borrow, trade and invest without intermediaries. This decentralized model greatly reduces transaction costs and improves the efficiency of capital use. For example, as a decentralized exchange (DEX), Uniswap allows users to trade tokens directly on the chain without relying on centralized trading platforms. This convenience has attracted a large number of users to participate, thereby driving up the demand and price of DeFi tokens.

Secondly, the liquidity mining mechanism of DeFi tokens is also one of the important reasons for their high return rate. Liquidity mining is an incentive mechanism. Users can get corresponding token rewards by providing funds to the liquidity pool. This mechanism not only increases the number of token holders, but also improves the liquidity of the market. Taking Compound as an example, after users deposit assets into its platform, they can not only get interest, but also get COMP tokens as rewards. Due to the popularity of liquidity mining, many users actively participated, driving up the price of tokens.

In addition, the rapid development of the DeFi ecosystem also provides strong support for the returns of tokens. As more and more projects and platforms emerge, users' choices become richer and competition becomes more intense. This competition has prompted various projects to innovate and launch more attractive features and services. For example, Yearn.finance has attracted a large amount of capital inflow by aggregating different DeFi protocols to help users maximize their returns. In this virtuous cycle, the value of DeFi tokens continues to rise, and the rate of return naturally rises.

Of course, the high returns of DeFi tokens are not without risks. In 2020, there were also some DeFi projects that caused heavy losses to users due to security vulnerabilities or hacker attacks. For example, a well-known DeFi project was hacked due to a smart contract vulnerability, and the loss amounted to millions of dollars. These events remind investors that while pursuing high returns, they should also carefully evaluate the security and sustainability of the project. Despite this, many investors are still confident in the future development of DeFi tokens and believe that they can occupy an important position in the future financial system.

Looking ahead, the potential of DeFi tokens is still huge. With the continuous advancement of technology and the gradual maturity of the market, DeFi will usher in more innovation and development. For example, the advancement of cross-chain technology will make the flow of assets between different blockchains smoother, further improving the overall efficiency of DeFi. In addition, the gradual improvement of regulatory policies will also bring more compliance and trust to the DeFi market, thereby attracting more traditional investors to participate.

While summarizing the performance of DeFi tokens in 2020, we should also pay attention to the deep-seated reasons behind it. The decentralized financial ecology, liquidity mining mechanism, innovative projects and strong market demand have jointly created the brilliant returns of DeFi tokens. This is not only a challenge to investors, but also a profound reflection on the traditional financial system. In the future, whether DeFi can continue to lead the market trend is worthy of deep thought and expectation from each of us. In any case, the success of DeFi tokens in 2020 has revealed to us the advent of a new financial era.

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Analysis of 38 top DeFi assets shows median returns are just 15% higher than Bitcoin. Despite a pullback in the decentralized finance bull run, DeFi tokens have seen average returns far outstripping those of Bitcoin and Ethereum. However, median returns are another story.

On November 17, anonymous crypto analyst “Ceteris
Paribus” shared data with his 12,000 followers that aggregated the median and average year-to-date returns of 40 top crypto assets, including 38 top DeFi assets, Bitcoin (BTC), and Ethereum (ETH). Currently, about 26 DeFi assets have reported their year-to-date returns.

The analyst found that the median return of these 26 top DeFi assets was about 148.8%, 15.5% higher than Bitcoin’s year-to-date return of 133.3%. Therefore, half of the DeFi tokens have returns above 148.8%, and half are below 148.8%. Paribus said that DeFi tokens’ median returns are generally similar to Bitcoin’s returns:

“So far, DeFi tokens have shown a strong rebound in November, but not as high as the summer rally, with median returns comparable to BTC, but not much better than Bitcoin.”

However, in 2020, the average return of these 26 DeFi tokens was 428.7%, more than three times that of Bitcoin.

As of this writing, the top performing DeFi assets in 2020: Aave (AAVE) returned 4245%, Band (BAND) returned 2466%, and Yearn
Finance (YFI) returned 1597%. THORChain (RUNE) returned 1203%.

So far, the worst performing assets in the DeFi space are Curve (CRV), SushiSwap (SUSHI), and Swerve (SWRV), with losses of 88.7%, 80.1%, and 79.9%, respectively.

DeFi assets have seen extreme volatility in recent months, with 10 of the 29 DeFi tokens posting returns of more than 1,000% in August, with CRV being the only asset to lose money.

However, only Gnosis (GNO) and Hegic (HEGIC) saw single-digit gains between September and October, while the remaining 34 tokens were in the red, with five falling more than 89%.

So far, November has been relatively less volatile, with 32 of the 38 tokens posting median and average returns of around 20% and 35%, respectively.