Decentralised Finance (DeFi) has been one of the key talking points in the cryptocurrency market this year, with an array of new entrants to the market offering extraordinary returns on decentralised lending protocols.
The up-and-coming industry is still immature and rife with risks, as seen by SushiSwap’s capitulation and recovery over the weekend, but it’s still attracted an astonishing amount of capital.
According to a recent research report by Messari, an estimated $500 million of Bitcoin has been tokenised on the Ethereum blockchain to participate in DeFi.
This equates to just 0.3% of Bitcoin’s $216 billion market cap, indicating that in spite of its sceptics DeFi still has a substantial amount of room to grow.
Nicholas Pelecanos, Head of Trading at NEM, commented: “DeFi is garnering a lot of attention in crypto circles as a great disruptor to the traditional banking system, as evidenced by the recent Messari report.
$500M worth of #Bitcoin has been ported over to Ethereum in 2020
With only 0.3% of all bitcoin on Ethereum and DeFi booming, the opportunity for decentralized bridges between the two chains is hard to ignore. $KEEP $REN pic.twitter.com/tLGWlaIuFZ
— Messari (@MessariCrypto) September 1, 2020
“The recent boom in the DeFi market follows the well documented innovation adoption curve. Growth for an innovation, in this instance DeFi, is largely led by technological advancements, followed by capital and regulatory growth. Therefore, the overall growth of the space or ‘development’, is a function of usership, technological and regulatory growth, and capital.
“At its core, DeFi is providing a means of decentralised lending, lenders earn a yield and the loan is secured by some amount of collateral in the form of a token.
“That being said, DeFi is still very much in its infancy, with the infrastructure and processes still in the experiment phase – this was proven by the recent YAM finance collapse which recently fell 90% in value due to a bug in its code.
“DeFi’s low barrier to entry is perhaps what makes it most attractive – as both decentralised and permissionless, it removes the need for onerous permissions, significantly levelling the playing field by allowing everyone to participate. The potential benefits for both businesses and individuals are exponential, and I believe that this is just the beginning for the DeFi space.”
As noted in Coin Rivet’s daily technical analysis, DeFi tokens are relatively illiquid and extremely risky, as evidenced by SushiSwap’s rollercoaster weekend after a leading developer sold his entire stash of tokens.
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Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.