The Decentralised Finance (DeFi) ecosystem had been growing exponentially but with almost all application in Ethereum only, is this a hint that Ethereum is largely undervalued and that Ethereum may just be the last standing cryptocurrency?
The growth of the ecosystem of Decentralized Finance (DeFi) has been exponential. Not merely at a regular level, but in the most surprising way possible. The number of users of DeFi is on the rise every month. The most puzzling part is that the Ethereum DeFi ecosystem has the largest share on top of this network. Even during bear-market periods, Ethereum DeFi volumes and number of transactions do not go down but rather continue in the upward direction.
An Introduction to DeFi
The concept of “Decentralized Finance” (DeFi) generally refers to smart contracts (decentralized computer programs) that perform computation related to value or financial data. It also refers to digital assets, decentralized applications (DApps, this means Apps that provide access to smart contracts), and to protocols built on top of a Blockchain.
In most definitions for “DeFi”, you will most likely find the label “Built on Ethereum” which confirms the idea that there is a relative monopoly of Ethereum ir terms of Defi, inside the crypto ecosystem. DApps and Smart Contracts are created based on financial use cases and are, then, directly related to transacting with value, hence the name Decentralized Finance.
In order to be able to even start developing a DeFi ecosystem, a series of previous technological implementations must exist already. First of all, a trustless and decentralized blockchain is necessary. This blockchain must be open, public and censorship-resistant. It is also crucial that this blockchain has the property of being fully or – at least – highly programmable and, therefore, turing complete. Besides, that, it is absolutely mandatory the existence of the technology of Smart Contracts and of applications that can connect to smart contracts (DApps).
By looking at all the above features, you will have inferred many reasons why Ethereum is actually the most important in this sector. We already know Ethereum is the blockchain that is used the most for the implementation of Smart Contracts and DApps, two technologies that constitute the base of DeFi. The most popular cryptocurrency, Bitcoin’s blockchain has not been coded originally for smart contracts and DApps.
One simple definition would be this: DeFi is financial software built on an existing Blockchain. Examples are tokens (like ERC 20, ERC 777), decentralized exchanges, lending and borrowing platforms, tokenised physical assets like gold, prediction/Betting platforms, payment networks, Insurance systems, voting platforms, that are all implemented in smart contract.
All of the above implies some engagement or exposure of users to financial industries, by offering services that are built on the blockchain. These must exist in a decentralised environment making them get the name Decentralised Finance (DeFi).
When we start giving examples of DeFi projects, we will get to know that almost all of them are on the Ethereum platform, this is the reason why Ethereum is the DeFi Blockchain and enjoys a huge monopoly in the ecosystem.
Examples of DeFi Platforms:
- Decentralised Exchanges: also known as DEX is like a stock exchange or crypto exchange but runs on smart contract on the ethereum blockchain. This type of exchange doesn’t have a central authority and so all your assets never leave your wallet, you only trade on chain without sending to an exchange wallet. The biggest implementation of this has been in trading ethereum tokens. Examples include; DDex, McAfee Dex, EtherFlyer and many others
- Lending and Borrowing: here, you stake some Etherum to mint the local tokens as a form of borrowing, the Ethereum staked will be release after payment. Examplese include MakerDAO, ETHLend, Compound, Nitrogen Network
- Payments: are smart contracts that implement a payment system. Example: Connext, Flexa
- Assets: are tokens or tokenised physical assets. Examples are ERC tokens
- Prediction Markets: are used for making prediction about the outcome of an event with the power of smart contracts. Example include: Augur
The list goes on, for more extensive list and explanation, a platform has been dedicated to this. For more explanation visit DeFI Pulse (DeFi on Ethereum) or DeFi Pulse (Zero to DeFi). For list of DeFi platform examples visit DeFi Pulse (DeFi List).
Historical DeFi Statistics
Last year, Binance conducted a research on DeFi and published results stating that Ethereum’s dominance is more extensive than that of any other blockchain in the crypto ecosystem. The results of the investigation demonstrated that most of DeFi Apps are currently built on the Ethereum Blockchain.
In 2019, DeFi recorded a stunning 40,000 new users every month. August did record 60,000 new users. The majority of users are into Decentralised Exchanges and the growth was steady, starting from 4,649 new users in January to make 25,925 new users in December. The report further emphasised that more than 90% of all on-chain volume for Ethereum DApps comes from DeFi related applications and stated:
“Ethereum and DeFi have become a two-headed monster, each leading the growth of further development in the other”
The total ethereum locked in DeFi also increase by 53.8% in the year with almost a linear growth except for a little drop in June.
Year 2020 DeFi Statistics
The value keeps increasing though and has experienced a huge surge in 2020 which has made the discussion about DeFi more heated and the potential of Ethereum.
DeFi Pulse is an Ethereum DeFi monitor. You can track DeFi usage on the Ethereum platform there. The current statistics show a steep upward surge in 2020 with total value of locked USD in DeFi applications around $923 million. Maker is dominating the space with 58%.
What do DeFi Statistics mean for Ethereum?
Based of this statistical data, one could easily find reasons to believe that the growth and adoption of Ethereum may surge and increasing the value. This evolution and immense growth of DeFi mean more crypto users are investing and entrusting their money in Ethereum and Ethereum-related applications making Ether the cryptocurrency of the most widely used Blockchain.
There have been recent predictions of up to $9,000 for the price of Ether, perhaps mostly due to the exceptional increase in DeFi usage in 2020. Such price may just be coming with this level of adoption. Ethereum is moving forward to create the most exciting Blockchain in the crypto space. Even if at times crypto looks boring in general, surely DApps and DeFi do not. People are making this clear by moving into DeFi and engaging in it, by investing in valuable assets that run in Ethereum and, in many cases, by adopting Crypto for the first time through Ethereum.