  Decentralized Finance (DeFi) is a nascent set of financial services, using
tokens, smart contracts, and blockchain technology as financial instruments. We
investigate four possible drivers of DeFi returns: exposure to cryptocurrency
market, the network effect, the investor's attention, and the valuation ratio.
As DeFi tokens are distinct from classical cryptocurrencies, we design a new
dedicated market index, denoted DeFiX. First, we show that DeFi tokens returns
are driven by the investor's attention on technical terms such as
"decentralized finance" or "DeFi", and are exposed to their own network
variables and cryptocurrency market. We construct a valuation ratio for the
DeFi market by dividing the Total Value Locked (TVL) by the Market
Capitalization (MC). Our findings do not support the TVL/MC predictive power
assumption. Overall, our empirical study shows that the impact of the
cryptocurrency market on DeFi returns is stronger than any other considered
driver and provides superior explanatory power.
