The post-election era is sparking a reassessment across all crypto sectors with DeFi, or decentralized finance, emerging as one of the prime areas for potential change. This is largely attributed to expectations of a more crypto-friendly U.S. administration following the electoral victory of Donald Trump. There is a growing anticipation that the regulatory climate surrounding cryptocurrencies in the U.S. will become more favorable, thereby prompting a repricing event for top DeFi tokens.
These developments are already starting to impact various crypto sectors, leading to outsized recoveries. DeFi and DEX tokens have been the standout trends in recent days, buoyed by the prospect of a bright future under Trump’s tenure. The DeFi sector currently holds close to $89 billion in locked value, which is roughly equivalent to its market cap valuation. However, it’s important to note that not all projects share the same ratio of value locked, returns, and market capitalization. DeFi is far from standardized, with each project taking its own unique approach in terms of innovation, incentives, and user acquisition. DeFi user numbers have been on the rise, with over 21 million users in September and above 18 million in October.
Trump himself has shown interest in DeFi with his World Liberty Financial, which took a cautious route with a locked token launch. The existence of this and other crypto products will undoubtedly increase the demand for new regulations.
Crypto enthusiasts are also closely watching Gary Gensler, the chairman of the U.S. Securities and Exchange Commission (SEC). In recent years, the SEC has launched a series of aggressive lawsuits against active crypto and DeFi projects. However, Trump’s victory has sparked expectations of a reshuffle within the SEC, potentially ousting Gensler in favor of a more crypto-friendly chairman.
Despite the fluctuating market conditions, Web3 and DeFi projects continue to innovate and build infrastructure. Several tokens have emerged as blue-chip DeFi, carrying the largest locked value. Many of these are tied to the Ethereum ecosystem and offer forms of staking and other passive yield instruments.
In the immediate aftermath of the U.S. election, top DeFi tokens rallied, buoyed by the absence of regulatory overreach. Lido (LDO) was one of the standout performers, rallying by up to 39% to $1.33. Strong recoveries were also observed for Ethena (ENA), Raydium (RAY), Aave (AAVE), and others.
The DeFi sector’s overall valuation has now surged to over $99 billion. Top DeFi tokens such as Uniswap (UNI) had the strongest rallies, gaining 32% in the past day to $9.43. Uniswap, which faced SEC scrutiny in recent months, is expected to benefit from a more lenient regulatory environment.
A significant portion of DeFi is tied to infrastructure, such as Data Availability layers. However, these projects also offer passive returns and incentives, which could potentially trigger regulation. Without excessive oversight, these projects could continue to innovate and expand their influence.
In recent years, DeFi projects have changed their value propositions following the crash of FTX and several large funds. Crypto projects like Maker, Tether, and others now use U.S. T-bills as partial collateral, thus reducing potential contagion events tied to crypto collaterals.
The potential for reduced regulatory scrutiny could also divert investor interest back to complex projects with serious value propositions. This could lead to a shift away from meme tokens, which have become popular due to their lack of regulatory scrutiny.
In conclusion, DeFi, despite being at risk of regulatory crackdowns, is showing its resilience and potential. The sector has undergone multiple stress tests and continues to emerge as a stronger value proposition in 2024. The prospect of a more lenient regulatory environment could further drive its growth and influence in the coming years.
