According to CoinGecko’s most recent yearly report, DeFi will continue to grow in 2020, with more than $1 billion locked on the Ethereum blockchain. Ethereum’s DeFi is unstoppable, and it’s going to be one seriously bumper year.
What is DeFi?
DeFi refers to decentralized applications (dApps) or platforms that enable investors to engage in traditional financial services, only with Ethereum as collateral. Users can take loans, make payments, trade derivatives, and more, without the need for any centralized entity. The key really is in the name here – DeFi stands for Decentralized Finance, and that’s precisely what it is.
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According to the report, Etheruem’s DeFi is unstoppable. With interest rate swaps, and decentralized options markets allegedly set to be launched later this year, DeFi is growing every day. The report also spoke of how the DAI savings rate could be a major contender for adoption as the reference rate in the DeFi ecosystem, like how the London Inter-bank Offered Rate is used in traditional financial markets.
The report also stated the Decentralized Autonomous Organizations (DAOs), will help the DeFi system reach true decentralisation. It’s expected to be used in various projects like Synthetix and Kyber in the future. While DeFi may not need regulation, it may actually be helped rather than hindered by crypto-friendly regulators – particularly in major cryptocurrency locations. Friendly regulations could actually boost the market in this case.
CoinGecko‘s co-founder, Bobby Ong, commented in the report,“Total value locked in DeFi apps on the Ethereum blockchain will exceed over $1 billion.” He also mentioned that there would be more than 100 DeFi apps by the end of 2020, all of which will likely appear on smart contract platforms. However, he’s well aware of the risks associated, saying, “It would not surprise me if at least 1 DeFi app will get hacked.” However, DeFi insurance and derivative markets will adapt to better tackle these risks.
According to Ryan Sean Adams, the founder of Mythos Capital, there is potential for Ethereum to reach a $1 trillion market cap, but it’s all down to DeFi.
The trillion dollar case for ETH
— Ryan Sean Adams – rsa.eth (@RyanSAdams) January 16, 2020
However, the case for a trillion dollar market cap for Ethereum is still pretty far-fetched. For example, Adams argued that if half of Argentina’s monetary supply transitions to Ethereum, it can create a circulating supply of 13.58 billion DAI. DAI is a stablecoin that represents the US dollar on the MakerDAO ecosystem. MakerDAO users can use Ethereum to issue loans or process payments.
Adams argued, “While 13.58B in circulating Dai seems like a moonshot today, it’s actually just a tiny slice of a potential future for a global, permissionless financial system when you consider traditional capital markets aggregate hundreds of trillions in value.”
However, the likelihood of Ethereum somehow capturing the majority of the monetary supply of an entire country is pretty slim – at least at this point in time.
DeFi in 2020
There’s really no getting around it, Ethereum’s DeFi is unstoppable. With 2020 set to be a very good year for crypto, it’s more than likely that DeFi will continue to grow – and Ethereum with it. With more products entering the space, DeFi will become increasingly decentralized, and pose a real challenge to traditional financial entities. It offers a solution for crypto users, allowing them to engage with traditional financial services, but in a decentralized manner. Who wouldn’t want to get involved in something like that?
Right now, Ethereum has a market cap of $18,318,879,805. Although Ryan Adams seems to think that DeFi can get Ethereum to 1 trillion, it seems unlikely at this point in time – and into the foreseeable future. Realistically, the kinds of solutions that DeFi offers will boost Ethereum, but getting the blockchain to a trillion dollar valuation sounds far fetched. Either way, DeFi is providing something essential in the crypto space, and it’s only going to get bigger.