Abstract
We test for the existence of bubbles in conventional and DeFi-focused cryptocurrencies, seeking to identify key driving forces that distinguish DeFi tokens from conventional cryptocurrencies. Utilising Generalized Supremum Augmented Dickey-Fuller tests, we identify the presence of significant bubbles across multiple markets, with relatively more stable price developments in DeFi-focused cryptocurrencies. Finally, DCC-GARCH and Diebold–Yilmaz spillover analyses of return and volatilities indicate that DeFi-focused cryptocurrencies possess stronger and more stable correlations with Ethereum than Bitcoin, and that neither cryptocurrency influenced a significant DeFi bubble formation that occurred during 2020. Results suggest that the DeFi market should be viewed as a separate asset class from conventional cryptocurrencies. Our findings provide important information for investors seeking additional diversification opportunities, as well as well as policymakers and regulatory authorities separating and better understanding these growing asset classes.
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Notes
Before Chainlink, there was mechanism for smart contracts to interact in real-time data outside their native chains in a decentralized manner. Hence, Chainlink filled a significant gap, where Chainlink price-feeds became an industry standard, with over 900 decentralized oracle networks running, each collectively helping to secure tens of billions of dollars utilized by hundreds of DeFi applications across several blockchains. Therefore, it is reasonable to behaviour of price data for these two projects, Maker and Chainlink, can be associated with the level of adoption or their fundamental influence within the DeFi space.
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Corbet, S., Goodell, J.W., Gunay, S. et al. Are DeFi tokens a separate asset class from conventional cryptocurrencies?. Ann Oper Res 322, 609–630 (2023). https://doi.org/10.1007/s10479-022-05150-z
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DOI: https://doi.org/10.1007/s10479-022-05150-z