DeFi Crash Accelerates With Some Once-Hot Investments Losing 50%

Cryptocurrencies sold off as a crash in tokens used in decentralized-finance applications accelerated, deflating the value of some once-hot investments by more than 50%.

DeFi coins, which gained popularity this year to become one of the hottest sectors in the already volatile market, came back down to earth Friday. Tokens including Galaxium and Crypto Village Accelerator have each lost more than 60% over the past 24 hours, according to data from CoinMarketCap.com. More established ones, such as Uniswap -- which is one of the best-known in the space -- lost roughly 7%, while Chainlink retreated 8%.

“DeFi tokens have been the epicenter of questionable valuations in this crypto bull rally, similar to what was seen in the ICO-craze of 2017,” said Stephane Ouellette, chief executive and co-founder of FRNT Financial. “Untested protocols, some of which have lost millions in customer assets continue to trade at valuations in the 100 millions or billions. It’s clearly not sustainable and is an existential risk to the prices of tokens representing promising projects in the space.”

The broader crypto market also lost ground, with Bitcoin, the original cryptocurrency, dropping as much as 6.9% to $35,162. Other coins also retreated, with the Bloomberg Galaxy Crypto Index -- which tracks Bitcoin, Ether and Litecoin, among others -- dropping 7.4% at one point, pushing it to the lowest point since early June.

DeFi apps are designed to let people lend, borrow, trade and take out insurance directly from each other, without use of intermediaries such as banks. The space -- though it’s been plagued by hacks, fraud and a copy-and-paste coding culture -- boomed earlier in the year but came crashing down this week.