Tuesday, October 20, 2020

DeFi traders blame YFI price collapse on shorting by Alameda Research

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Yearn Finance (YFI) price has been in a serious rut during the past 2 weeks and many in the crypto community blame the sharp correction on Sam Bankman-Fried (SBF), the CEO of Alameda Research and FTX. 

In the past month, DeFi giant Yearn.finance’s native token YFI dropped 62.7% from $43,970 to $16,360.

As Cointelegraph has reported, the majority of DeFi tokens corrected 40%-60% in September and this sell off took place as Bitcoin and Ether (ETH) prices also dropped.

In the past 40 days, the price of Ether declined from $488 to $372, dropping to as low as $308. This weakness in the top-ranked altcoin by market cap further amplified the downturn of DeFi tokens.

YFI/USDT daily chart. Source: TradingView.com

Why is Alameda shorting YFI?

Throughout the past week, various reports emerged that Alameda Research has a short position on YFI.

Alameda, which describes itself as a quant trading firm, is recognized as one of the most successful crypto trading firms. In November 2019, Bloomberg reported that Alameda facilitates 5% of the cryptocurrency market volume, trading up to $1 billion daily.

On Oct. 11, SBF confirmed on social media that Alameda does have a short position on YFI. But, SBF emphasized that it did not crash the price of YFI.

According to SBF, Alameda placed a net 200 YFI short position. It is equivalent to around $3.28 million at a price of $16,400. Yet, the exchange executive said it was not enough to crash the price of YFI. He said:

“SBF borrowed YFI which destroyed its price, he sold it on Binance and other exchanges – only once he was caught, did YFI go back up’ False. 200 net YFI short over days does *not* destroy it! This is just off by an order of magnitude. The impact wasn’t huge.”

SBF also added that the YFI he “borrowed” on Cream, a DeFi protocol, was not used to short the cryptocurrency.

Much of the negative sentiment around SBF’s YFI short came from the speculation that he borrowed YFI to short it.

Bankman-Fried denied the speculations and explained that “most of the YFI was borrowed for liquidity and farming, not selling or shorting.”

For a firm in the size of Alameda, a $3.28 million position is likely a hedge against the market.

In the past week, Bitcoin and Ether have increased substantially while DeFi tokens were flat across the board.

Due to the trend of major cryptocurrencies outperforming smaller DeFi tokens, the YFI short could be a short-term hedge.

Is YFI’s mega rally over?

YFI’s price is still down significantly from its peak of $43,966 but this doesn’t mean the project lacks strong fundamentals. Currently the team is preparing to launch its Yearn v2 Vaults, a major upgrade to its popular vaults. Once active, the vaults will allow DeFi users to earn yields by staking their tokens in the vaults.

According to Stats.finance, around $813 million worth of capital is locked in Yearn vaults as of Oct. 12.

Despite the upcoming product launch, the recent controversy involving former YFI supporter Blue Kirby, and the prolonged downturn in YFI price have some traders cautious about the future of the project.

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