DeFi traders blame YFI price collapse on shorting by Alameda Research
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.
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.
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.