Ari Paul, founder of Blocktower Capital, recently argued that the DeFi space is currently undergoing a parabolic collapse:
“A basic trading rule is that when parabolic (true parabolic) advances break, you don’t look to buy until most of the parabolic move is reversed. In BTC tops, that’s meant waiting for 75%+ dips. In alts, 85%+. BTC had a clear parabola in 2017. A less clear one in 2019. Defi just had one burst.”
Crypto trader Qiao Wang has also noted that the SushiSwap exit will likely cause a “DeFi mini-winter” as capital exits the space.
The DeFi space arguably has room to grow, which suggests that this pullback may just be a temporary move before an eventual return to a bull trend.
Andrew Kang, a crypto analyst and investor, noted in July that the way in which DeFi was positioned indicates the sector has lots of room to grow in the future:
“**DeFi development**. It’s hitting an inflection point. Those that have follow the space know how hard it is to keep up with the new projects even when researching on a full time basis.”
What threatens the Ethereum ecosystem’s growth in the longer term, though, is a high transaction fee environment.
Jacob Franek, a co-founder of crypto data and analytics company Coin Metrics, recently noted that the extremely high transaction fees Ethereum users have been incurring could result in a natural hard cap to the bull run:
“Gas prices will put a hard cap on this DeFi bull run. To be expected and probably a good thing… High gas likely new normal.”
This may not be a longer-term concern if there are solutions like those proposed by Ethereum’s developers. But for the time being, it is a concern, especially as the blockchain’s developers target more retail-centric users with new applications.
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