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Ethereum correction resulted in a DeFi-token collapse which dropped YFI and UNI by 46%. After outperforming Bitcoin and Ethereum strongly in August, Decentralized Finance (DeFi) tokens are now plummeting as several registered losses of up to 50%.

At the time of writing, the two coins that experienced tragedy are Yearn.finance (YFI) and Uniswap (UNI) as both have dropped by 46% and 48% since reaching a monthly peak.

Three catalysts seem to be behind the correction: Ether’s pullback, profit taking from BTC’s previous rally and a big sell off amongst DeFi-tokens.

Most DeFi tokens corrected by 15% to 25%

Most of DeFi tokens have dropped by 15% to 25% on the day. Even cryptocurrencies that are not directly connected to DeFi tokens, like Chainlink (LINK), saw a 15% price drop.

While the pullback of DeFi tokens coincides with the decline in Ether price, a take-profit correction was expected by analysts.

As reported, Uniswap airdropped 400 UNI tokens to every trader that used the Uniswap decentralized exchange before Sept. 1. At its peak at around $8.80, the 400 UNI tokens were worth $3,520.

UNI saw a massive price spike in a short period due to multiple major exchange listings. Within the first five hours of launching, Coinbase Pro, Binance, and FTX listed UNI. So the price of the token surged from $0.30 to $8.80 in less than five days.

Due to the massive gains of DeFi tokens in their USDT and BTC pairs, a profit taking correction was widely expected but the intensity of this correction has many traders surprised.

Ether struggles to sustain momentum

Ether has always led the rallies among altcoins, such as DeFi tokens. In some bull cycles, Ether also front ran BTC price.

However, Since Sept. 1, Ether has struggled to match the performance of Bitcoin. While Bitcoin rallied from $10,300 to $11,100, Ether remained below $400.

In the past 20 days, Ether price dropped by around 28% and in the same period, BTC recorded a 12% drop against the U.S. dollar.

Ethereum’s short term weakness was possibly because of the increased selling pressure on DeFi tokens, hence the nearly 50% correction from the likes of UNI and YFI over the past days.

Bitcoin profit taking kickstarted the DeFi correction

Bitcoin saw a strong upsurge, while Ether, altcoins and the majority of DeFi tokens remained stagnant. This is somewhat atypical as usually when Bitcoin is range bound, altcoins rally, and when Bitcoin rallies moderately altcoins may lag but still want to follow BTC’s bullish price action.

This short term inverse correlation between BTC and altcoins shows that BTC saw a take-profit rally as investors cycled profits from DeFi tokens to Bitcoin.