DeFi blue chips, including Aave (AAVE) and SushiSwap (SUSHI), have felt hard in recent days as Bitcoin sees range-bound consolidation at about $ 35,000 as of January 17.

Both AAVE and SUSHI prices have more than tripled since December, in just a month. Investors attribute the bull run of DeFi tokens to the market ‘reassessing’ major DeFi projects.

SUSHI / USDT 1-day price chart (Binance). Source: TradingView.com

Why are DeFi projects like SUSHI and Aave ‘reassessed’?

The DeFi market has had an incredible run since 2020. The total value locked in (TVL) for DeFi protocols is worth more than $ 22 billion, showing that rapid growth of the market.

DeFi market capitalization / TVL. Source: Digital Assets data

However, despite the rapid growth, most DeFi protocols were estimated to be around $ 1 billion. In contrast, many “OG” altcoins have a multi-billion dollar market cap, but have lower user activity and no cash flow.

DeFi protocols are unique in that they generate cash flow. This means platforms such as Aave, Synthetix, and Yearn.finance have small fees that can be used to fund the treasury or to compensate users who put their tokens into the protocols.

Based on the rapidly growing user base of most DeFi protocols and the increase in their cash flow, investors said DeFi protocols see an important ‘reassessment’ moment.

Santiago R Santos, a partner at ParaFi, a DeFi-focused fund based in the US. said:

“DeFi protocols creeping into the top 20 are an important reassessment moment. As stupid as it may seem, it’s like being on page 1 of Google search results. So far, DeFi has captured limited mindshare. It is <5% of the total cryptocurrency market cap. Still, it has the most use, innovation, and basics. "

Santos stressed that it is difficult to define another asset class as capital efficient, profitable and fast growing as DeFi. He added:

“Watch us go through a fundamental reassessment of DeFi protocols. Point to another asset class that is growing as fast, profitable and capital efficient as DeFi? I will wait.

What’s next for DeFi?

Currently, Aave and SUSHI are valued at $ 2.2 billion and $ 900 million, respectively. Still, analysts still say they are both undervalued at these market limits, given the user activity on both platforms.

SushiSwap, for example, continuously exceeds its record high monthly volume. Ryan Watkins, an analyst at Messari, said SushiSwap is on track to quadruple the high monthly volume it reached last month. Watkins explained:

“Uniswap is on track with 1.5x its ATH monthly volume set in September 2020. SushiSwap is on track with 4x last month’s ATH monthly volume. This would bring in $ 6.4 million in revenue for token holders. “

SushiSwap monthly volume. Source: Messari

If the DeFi market continues to grow at its current pace, the major DeFi protocols would generate higher cash flows, making them even more undervalued.

Arthur Cheong, a partner at DeFiance Capital, one of the largest DeFi funds in Asia, said on January 13:

“Great piece from Delphi, which reinforces our argument that Sushiswap is grossly underrated, is poised for a major reappraisal soon.”