DeFi Tokens Buck Bearish Market Trend as Bond Yields Soar

Various tokens backing blue-chip decentralized finance applications are bucking the bearish market trend.

CurveDAO’s native governance token CRV has soared more than 21% over the past week as users minted $114 million crvUSD, the newly launched stablecoin by Curve Finance, backed by Bitcoin (BTC), Ethereum (ETH), and ETH liquid staking derivatives as collateral.

Elsewhere, governance tokens behind Maker (MKR), Frax Share (FXS), and Chainlink (LINK) posted weekly gains between 8% to 9%.

According to CoinGecko data, the wider DeFi lending and borrowing sector witnessed growth, with most tokens trading in the green over the last seven days.

The positive move may likely be attributed to the rise of real-world assets (RWA) and liquid staking tokens as collateral in each of these applications.

RWAs are traditional financial instruments, such as bonds or corporate debt, that have been tokenized.

The total deposits in RWA asset protocols have increased across the board, per DeFiLlama data. RWA asset protocols are decentralized applications for tokenized RWAs.

Another recent CoinGecko report found that the total deposits in liquid staking protocols have grown 5,870% since January 2023, reaching $919.0 million by the end of August.

Liquid staking derivatives (LSDs) refer to tokens like Lido’s stETH that provide users with a token representation of their staked Ethereum position that can then be used again in the DeFi sector.

DeFi lending protocols are increasingly making use of liquid staking derivatives to add as collateral.

For instance, Curve Finance’s new stablecoin crvUSD has around 53% of collateral composed in LSDs like Lido’s stETH and Frax staked ETH (frxETH).

Crypto wobbles as bond yields hit 2007 highs

The broader crypto market faced challenges due to risk-off sentiments in global markets.

Bitcoin experienced a 3.2% drop in its price, while Ethereum followed suit with a 2.6% loss over the week, primarily attributed to the rise in U.S. Treasury yields nearing 2007 highs.

The annual returns on 10-year U.S. treasury notes reached 4.5%—levels last seen during the last financial crisis of 2007.

The rise in treasury yields is a result of the market’s anticipation of another hike in benchmark interest rates by the U.S. Federal Reserve due to rising inflation.

Higher yields also reduce the opportunity cost of investing in risk assets such as cryptocurrencies and equities, both of which have experienced declines since last week.

The total crypto market cap fell 2.4% from $1.112 trillion to $1.084 trillion, losing $27.6 billion over the week, per Coingecko.

Furthermore, dwindling trading volumes across the market and delays in the approval of a spot Bitcoin exchange-traded fund (ETF) in the U.S. are further contributing to the prevailing negative sentiment.