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- The project has also been climbing the DeFi Llama ranks at a rapid pace
- On February 6, proponents for decentralized finance finally got the moment they had been waiting for: the TVL of all assets in defi protocols surpassed $1 billion
- Lending is at the heart of decentralized finance, with five of the top ten dapps focused on it (Maker, Compound, Instadapp, Dydx, and Bzx)
The Ethereum community has celebrated the achievement of $1 billion in total value locked (TVL) in decentralized finance applications. However, not everyone has been quick to applaud the achievement, with some claiming that the genuine value locked within defi protocols is significantly lower. Meanwhile, defi will have to innovate to maintain its value offer in the face of increasing competition from centralized lenders.
A Significant Day for DeFi
On February 6, proponents for decentralized finance finally got the moment they had been waiting for: the TVL of all assets in defi protocols surpassed $1 billion. At the time of publication, that sum had fallen somewhat to $997 million. The maker has a 60 percent dominance, according to Defipulse.com, which measures ecosystem growth. The crypto collateralized stablecoin network is to defi what bitcoin is to the crypto market, casting a great shadow over the proceedings.
Maker’s DAI and DAI stablecoins, which are derived from ethereum, provide liquidity to many of the decentralized lending, derivatives, and trading protocols. DeFi Pulse declared $1 billion to be an important milestone for Defi to be celebrated in a short blog post welcoming the achievement. It demonstrates how far we’ve come toward realizing our community’s vision of decentralized money and the world’s future. The defi market was worth less than $280 million a year ago. Currently, lending accounts for $766.5 million.
Decentralized finance has grown so rapidly in the last year that entire blockchains have been created to accommodate the budding defi ecosystem. This includes initiatives such as Genesis Network, which claims to offer a 15,000 tps blockchain and a wallet that can support a wide range of defi dapps.
DeFi’s Market Share is being eyed by centralized lenders
There’s a possibility that crypto lending may follow suit, much as centralized exchanges have commercialized staking, driving out specialized master nodes and staking services. Lending is at the heart of decentralized finance, with five of the top ten dapps focused on it (Maker, Compound, Instadapp, Dydx, and Bzx). However, centralized financing (cefi) lenders are breaking into this profitable market.
Binance launched the 13th phase of its lending products this week, with interest rates of 6% on USDT, 8% on BUSD, and 15% on ERD. There are also cefi lenders to consider, such as Cred and Squilla Loans, whose business model requires no knowledge of decentralized finance protocols and offers a superior user experience.
In the case of Squilla, for example, borrowers and lenders can simply enter the amount they want to borrow and the length of time they want to borrow it for an instant quote. Decentralized banking applications are improving, but they will struggle to match centralized crypto firms’ user experience and rates.
Taking a Closer Look at the $1 Billion Valuation
Defi Pulse, a website whose defi valuation is used by the whole industry, analyses each protocol’s underlying smart contracts on the Ethereum blockchain. We update our charts every hour by retrieving the total amount of Ether (ETH) and ERC20 tokens held by these smart contracts. The TVL(USD) is calculated by multiplying these balances by their price in USD.
It’s a method that’s similar to how cryptocurrencies’ market capitalization is determined. Market cap, on the other hand, has long been viewed as an unreliable indicator, and defi has been accused of the same. What percentage of the $1 billion in assets is made up of:
1) ICO tokens (illiquid?)
2) Not dismissed by Consensys or the Ethereum Foundation/Founders? One bitcoiner voiced his displeasure.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
