Fear Regimes in DeFi: A Study of Investor Behavior and Market Dynamics

Abstract

The aim of this study is to analyze how fear affects investor behavior in decentralized financial (DeFi) markets. The focus is on the relationship between the Fear and Greed Index (F&G) and the market prices of governance tokens from major DeFi platforms, including PancakeSwap, Balancer, Compound, SushiSwap, Uniswap, Aave, and MakerDAO. Each of these tokens is a native asset linked to a specific DeFi protocol and, beyond their tradability, they function as governance instruments, making them particularly sensitive to shifts in market sentiment and investor expectations. To examine how investor fear and greed impact token price dynamics, we apply a combination of econometric and behavioral approaches. Our findings suggest that while investor sentiment may influence volatility and regime shifts, its direct predictive power over daily returns of governance tokens remains weak.