Decentralised finance, commonly abbreviated to DeFi, has been one of the most notable developments in the cryptocurrency industry this year, with companies like Compound soaring in popularity alongside a host of other start-ups.
The rise in notoriety of DeFi is eerily reminiscent of the ICO bubble in 2017, which saw hundreds if not thousands of companies raise millions of Dollars in capital.
The bubble historically burst in the early stages of 2018 with the majority of ICOs losing more than 95% of value within the space of a year.
1/ It’s now obvious that ICOs were a massive bubble that's unlikely to ever see a recovery. The median ICO return in terms of USD is -87% and constantly dropping. Let's look at some data! pic.twitter.com/zmCXVPjup6
— Larry Cermak (@lawmaster) August 7, 2019
The issue was that most companies opted for the ICO route to bypass the heavily regulated and screened IPO structure, which meant that tokenisation simply wasn’t needed for the company to be a success.
Whitepapers that promised to revolutionise respective industries was commonplace, which in hindsight only contributed to one of the largest bubbles in recent history.
As the hype began to subside so did the companies that raised millions in 2017, with the likes of Pillar CEO David Siegel admitting to the complexities of operating a business during a gruelling bear market.
Another cornerstone of the ICO bubble was the flock of social media influencers that became overnight ‘cryptocurrency advisors’ and ‘whitepaper authors’ on social media websites like LinkedIn.
Fast-forward three years and another wave of social media aficionados are coming to LinkedIn but this time around they have taken ICO out of their bio and replaced it with DeFi.
This time around the sentiment is very similar, with people hailing DeFi as being a catalyst for change within the financial sector, ignoring the fact that the financial sector is in no desperate need of decentralisation.
It may be difficult for those who have invested too much capital into cryptocurrencies, but it remains extremely unlikely that a pseudo-sector like DeFi will be the saving grace that will drive mass adoption.
It does, however, have the potential of damaging the sector if the inflating bubble pops later this year as it was warn off another group of investors.
The Compound chart is a fine example, it surged by 167% just days after it was listed on major exchanges before falling by more than 50%, demonstrating how fragile this immature market still is.
At this stage, while many will disagree, DeFi seems like a new buzzword that applies to cryptocurrency companies in the lending space, which from an ethical standpoint isn’t the right way to go in terms of achieving mainstream adoption of digital assets.
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The views expressed in this article are not necessarily the views of Coin Rivet.