Ouyi OKEx Observation: Two major reasons help the total lock-up volume of DeFi exceed 100 billion US dollars

According to DeBank data, the total lock-up volume of DeFi exceeded 100 billion US dollars on April 28, a record high. The current total lock-up volume is 104.89 billion US dollars, and the net lock-up volume is 74.69 billion US dollars.

If the total lock-up amount of DeFi is placed in traditional finance, what is the volume? According to Wikipedia, that equates to the 40th largest bank in the US - somewhere between Silicon Valley Bank's $97 billion in assets and BBVA USA's $103 billion.

In other words, compared to traditional finance, DeFi has exploded with great potential in a short period of time. From the beginning of the year alone, the total lock-up volume of DeFi has increased by nearly 500%.What does this mean for the industry? What are the reasons behind the data growth? In an interview with the media, William, the chief researcher of OKEx Research Institute, expressed the following views:

DeFI's total lock-up volume exceeded 100 billion US dollars, which is indeed an epoch-making landmark event, which means that the total assets of "distributed financial applications" are already equivalent to the asset business volume of a medium-sized bank; of course, we should pay more attention The biggest thing is the growth rate of DeFI TVL --- in June last year, the TVL of DeFi just exceeded 1 billion US dollars, and in less than a year, its volume has increased by 99 times, which is very incredible and also It reflects the great potential of DeFi.

There are two main reasons why DeFi has exploded with such huge growth potential:

First of all, compared with traditional finance, DeFi has more advantages.This advantage is not only reflected in its openness and transparency, low cost, low default, high efficiency, intelligence, and automation, but also has the potential to completely change the current financial rules. Among them, the DeFI lending agreement and the automatic market maker mechanism ( AMM) is the most prominent.

Taking DeFi lending as an example, in the traditional financial industry, intermediary platforms are often needed (banks, P2P platforms connect to borrowers and lenders to realize the allocation of funds); however, for distributed lending protocols, such intermediary platforms do not exist. The matching of funds between lenders and borrowers is completely controlled by smart contracts with open-source codes. It can be said,DeFi lending protocols can be carried out completely without trust or credit system. In particular, Flash Loan, represented by AAVE, can issue loans without collateral, and there will be no risk of default during the period, which is almost impossible to happen in the traditional financial market! Even the notorious P2P lending in recent years cannot achieve the above functions.

The other is the composability of DeFi. For example, loan agreement projects in DeFi can be combined with automatic market maker (AMM) projects to derive new functional projects such as aggregator agreements.

In the field of DeFi, assets can flow from one protocol to another almost unimpeded, and from one type of asset to another type of asset, thus building a composable and closely connected DeFi ecosystem, which not only improves user The efficiency of capital utilization has also enhanced the system diversity in the DeFi field, and realized the positive feedback effect of mutual promotion and coordinated development among various DeFi protocols.

Of course, although the current DeFi field is developing very rapidly, and TVL has exceeded 100 billion US dollars, it should also clearly recognize the shortcomings of this indicator. The denomination unit adopted by TVL is the value of US dollars, and the assets locked by DeFi are mainly ETH and various ERC-20 tokens in the smart contract of the agreement. In recent months, the market price of ETH has been rising, which is also This makes the TVL rise. If we exclude the factors of ETH price rise and measure the locked value by the number of ETH, then we will find that the growth of the total locked amount of DeFi in recent months is not extreme.