The number of applications built on the Ethereum network is soaring as more people tap into the decentralised finance – or DeFi – trend.
A report by Dapp.com reveals Ethereum had more than 1.4 million active decentralised application (dApp) users last year, up from just over 800,000 in 2018. Of these, 1.28 million were new users and 137,000 were returning users.
The research also shows that of the 1,445 new dApps that were launched on the six largest smart contract platforms in 2019, a substantial 690 were Ethereum based.
The report mirrors earlier data from DappRadar, which shows Ethereum grew the daily user base of its dApp ecosystem by a huge 118% in 2019.
Finance sector takes charge
A deeper look at Dapp.com’s figures suggests it is the finance sector that is driving Ethereum application adoption.
Just over a quarter (26%) of active users were from finance – just ahead of exchange (23%). Likewise, 40% of the total $2.3 billion volume came from finance, 29% from exchange, and 18% from gambling.
Although Ethereum’s primary application was to be a platform for initial coin offerings and gambling, the growing DeFi trend has seen the network’s use evolve over the past 12 months.
Ethereum is still the top choice for gaming developers – more than 200,000 users engaged with Ethereum gaming dApps in 2019, which is twice as many as Tron and EOS combined.
At the same time, however, nearly half of active Ethereum dApp users used DeFi dApps last year, and 70% of the volume generated by the native ETH token was the use of decentralised exchanges and financial services, such as lending.
The rise of DeFi
DeFi – also known as open finance – has been a game changer for the Ethereum blockchain and the wider cryptocurrency industry.
DeFi refers to the transformation of old financial products into trustless and transparent protocols that run without intermediaries and outside of the control of companies and governments.
According to DeFi Pulse, there is currently $812.5 million worth of digital asset value locked in DeFi applications on the Ethereum blockchain, including just over three million Ether.
ConsenSys noted in a recent blog that Ether has become the “go-to collateral asset” for DeFi platforms and applications, adding: “Ethereum has established itself as the protocol that will become the foundation for the new financial economy.”
Other competing blockchains are also building DeFi products, but at a much slower pace than Ethereum. The number of active projects – with more than 50 daily users – nearly doubled in 2019 according to a report by Binance, and a growing pool of developers has been building new products and establishing new services.
Main players
Some of the main players in the DeFi space include Compound, which lets people borrow and lend coins such as ETH, USD Coin, and MakerDAO’s DAI stablecoin; Uniswap, which is designed to facilitate automatic digital asset exchange between ETH and ERC-20 tokens; and Augur, a decentralised prediction network.
In 2020, it is expected that new and existing companies will develop on top of borrowing and lending protocols that will enhance efficiency and build new products.
Some of these have already been created, such as Idle and Staked’s robo-advisor for yield generation.
“While 2019 saw significant strides forward in the development of decentralised finance, 2020 looks set to make a leap,” ConsenSys’ report claims.
Binance believes new developments on Ethereum-based DeFi will focus on areas such as derivatives, under-collateralised initiatives, and the inclusion of ERC-20 USDT.
The crypto exchange also predicts that staking (where users lock funds to secure the network and subsequently earn staking rewards) could become a fundamental building block of DeFi.
Alt-DeFi (DeFi outside of Ethereum) could also gain momentum owing to reasons such as more prominent cross-chain interoperability solutions.
Looking ahead
Some people believe a billion-dollar DeFi market could be just around the corner and that huge opportunities exist in places that have restrictive banking practices.
With the DeFi trend showing no signs of abating, Ethereum application adoption looks set to grow even further in the future.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.