Expert Takes: Messari Reports $500M In ETH DeFi ProjectsSeptember 7, 2020
Messari’s latest research report estimated that as much as $500 million worth of Bitcoin (BTC) has been tokenized on the Ethereum network for use in decentralized finance (DeFi) protocols.
This figure represents just 0.3% of Bitcoin’s $216 billion market cap, indicating that there is ample opportunity for projects that facilitate the migration of Bitcoin onto Ethereum, to capture significant value.
There has been a significant boom in the DeFi market over the past few months, with significant debate in the crypto economy as to whether such growth in the sector is both organic and sustainable, or fuelled by new means of speculation such as yield farming.
Some industry reactions to the report:
Nicholas Pelecanos, Head of Trading at NEM, commented:
“DeFi is garnering a lot of attention in crypto circles as a great disruptor to the traditional banking system, as evidenced by the recent Messari report stating $500 million worth of BTC has been tokenized on Ethereum for DeFi projects.
The recent boom in the DeFi market follows the well documented innovation adoption curve. Growth for an innovation, in this instance DeFi, is largely led by technological advancements, followed by capital and regulatory growth. Therefore, the overall growth of the space or ‘development’, is a function of usership, technological and regulatory growth, and capital.
As development increases in the DeFi space and new breakthroughs occur, the foundation for further development expands. This steepens the development curve, which then increases the overall utility of the space, resulting in a greater capacity to handle new capital, users and business. It is worth noting that Defi is currently on the knife’s edge in terms of its capacity to handle capital and could easily fall into a bubble.
At its core, DeFi is providing a means of decentralised lending, lenders earn a yield and the loan is secured by some amount of collateral in the form of a token. That being said, DeFi is still very much in its infancy, with the infrastructure and processes still in the experiment phase – this was proven by the recent YAM finance collapse which recently fell 90% in value due to a bug in its code.
DeFi’s low barrier to entry is perhaps what makes it most attractive – as both decentralised and permissionless, it removes the need for onerous permissions, significantly levelling the playing field by allowing everyone to participate. The potential benefits for both businesses and individuals are exponential, and I believe that this is just the beginning for the DeFi space.”
Konstantin Richter, CEO of Blockdaemon:
“With how things are trending and gaining a foothold in the market, DeFi is here to stay. Though there are still many kinks to be worked out, it’s clear that many DeFi products have already found product market fit. The pace of innovation is incredibly rapid and pushing the market forward, as proven by the recent DeFi report from Messari.
There are a few different methods for tokenizing BTC on Ethereum already with more trustless versions, like KEEP Network, getting ready to launch soon. With the advent of yield farming, protocols are looking to attract liquidity to their platforms by providing liquidity providers with a governance token in exchange for their liquidity. As it becomes easier to tokenize BTC on Ethereum, I anticipate more protocols targeting BTC as an asset for yield farming to tap into the deep liquidity and network effects.
Simply put, the 10,000%+ APY we are seeing on yield farming is not sustainable. Most of these experiments are likely to fail, but the ones that survive have a real shot at being the future of finance. We are witnessing the birth of a digitally native, parallel financial system that may just be a black hole that sucks in value from almost anywhere. Most of DeFi revolves around providing infrastructure to traders and speculators (exchanges, leverage, lending, insurance etc). These are all primitives for building a more robust economy, but also happen to align well with speculation.
The current DeFi boom, in regards to the high returns and optimism, feels eerily similar to the ICO boom. However, it is different thus far in the quality of projects, lack of retail (at least thus far), and investors demanding more from the projects they choose to put their money into.
The advent of fair launches and yield farming are a significant improvement on the ICO model from 2017: projects go beyond a just concept and vision to having a working product, and more projects on the whole have legitimate use cases. On the other hand, the recycling of money and leverage creating crazy pumps seemingly out of nowhere certainly rhymes with what we saw in 2017. It will be telling to see over the next few months how DeFi will learn from mistakes of 2017 and create a stable future for finance.”
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