DeFi will have a bigger impact on Ethereum than the ICO craze
It is obvious to all that the DeFi market withstood this year's "312 storm" and continued to grow. In comparison, other cryptocurrency markets are slightly flat. This new financial landscape may have a much greater impact on Ethereum than ICO.
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Fast-growing DeFi
According to DeFi Pulse, the DeFi market has nearly $1 billion in value locked. The DeFi market has now recovered 77% of its level since the market crash in mid-March that brought the total value down to $550 million.
(Note: "Locked Value" is calculated by multiplying the total balance of ETH and ERC-20 tokens held in DeFi smart contracts by the current USD price of ETH.)
In just 18 months, the value locked in DeFi has grown by almost 300%. While this figure will vary with the rise and fall of cryptocurrency prices, it has grown far faster than the total crypto market capitalization over the same period, which has only increased by 110%.
Ethereum is the backbone of the DeFi ecosystem, with 2.5 million ETH currently locked, accounting for 2.25% of the entire ETH supply.
Among them, Maker is the dominant force in DeFi, accounting for half of the market share and locking 2 million ETH. Other popular platforms include Synthetix, Aave, and Compound, which officially distributes tokens today. In the DeFi market, new platforms appear almost every week.
In May, DeFi passed several important milestones. The number of new DeFi assets surpassed 1,000 in the first month, and since the beginning of the year, the number of DeFi users has almost doubled, and its total user base has reached an all-time high of 200,000.
In less than a year, DeFi already has decentralized trading platforms, money markets, margin trading, ETH, options, and futures.
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Why is it more influential than IC0?
Chris Burniske, a partner at New York venture fund Placeholder, said that DeFi will have a much greater impact on Ethereum than IC0 had on it in 2017 and 2018. "The IC0 boom has enhanced Ethereum's ability to perform one financial service: early capital Formed. And DeFi will enhance the ability of Ethereum to perform all financial services.”
ICOs provided a way for projects to raise capital in ethereum, and although the bubble was relatively small compared to traditional investments, it pushed ethereum's price to sky-high prices — $1,400 in January 2018.
Unfortunately, most of the ICO tokens had little “product” and not only that, there was a lot of “hype” which led to a sell-off in almost every altcoin between late 2017 and Q1 2018. By the middle of 2018, failed project parties began to dump their ETH, causing the price of ETH to plummet by 94% that year.
Fast-forward to 2020, and there is increasing activity on blockchains, especially Ethereum. However, its price has yet to fully recover. On the other hand, DeFi has achieved impressive growth without the mania or buying frenzy of previous years.
Trader and analyst Cactus pointed out that this growth will continue, likely exceeding 2017, “Compared to 2017, the continued growth of ETH 2.0 and Defi may bring higher capital flows in the next two years. IC0’s Prosperity will be replaced by another storm."
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The future needs decentralized finance
DeFi expert Ryan Sean Adams described the US stock market in his latest blog "Unbanked Newsletter": The stock market is ostensibly a capital asset, but it is actually a savings account for the rich. U.S. stocks are the basis for the Fed's actions and are made for the Fed's continued money printing.
Adams pointed out that there was DeFi in 2017, but it was called IC0 at the time. Since those wildly speculative days are gone, DeFi has come a long way in many ways.
DeFi is now a complete financial ecosystem, not a casino for speculators. It can perform a variety of operations including payments, lending, borrowing, saving, trading, investing, yielding, managing, hedging and margin trading.
Economic bandwidth is expanding, with stablecoins worth more than $7 billion and half the value of ERC-20 tokens built on Ethereum. (Note: Economic bandwidth is the fuel for open and decentralized financial applications. In Ethereum 2.0, economic bandwidth will also help Ethereum stabilize its position as a global settlement layer.) As the scale of operations expands, online transactions Thousands of transactions per second can be achieved.
Adams said: "The cash flow generated by stocks is settled in the legal system, and the cash flow of DeFi assets is settled on the chain. Now, we are injecting rocket fuel into DeFi assets by unlocking new growth and governance mechanisms."
DeFi has really come a long way in the past few years, and this is just the beginning. The last financial crisis taught everyone a lesson, and it will happen again. The future of finance needs to be decentralized — and DeFi does just that.
