The total value in USD blocked in the decentralized finance protocols (DeFi) recently exceeded the USD 6 billion mark according to the chain data source, DeFi Pulse.
The figure now stands at USD 6.32 billion, up almost six times since reaching the USD 1 billion mark just three months ago. The exponential growth observed this year can largely be attributed to the advent of yield farming* and the launch of the Compound protocol.
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However, recent research by Encode Club founder Damir Bandalo found this figure to be somewhat inflated. Instead of USD 6.32 billion, Bandolo says that USD 3.5 billion is a better estimate for the actual value blocked on the 15 major DeFi protocols.
While the figures shown by various data sources for the DeFi ecosystem may be somewhat inflated, this is also the case in traditional finance, as one Twitter user noted.
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The total blocked value in DeFi protocols can be somewhat difficult to calculate, as a dollar can create its value several times over in blocked value. For example, a user can lock Bitcoin Evolution in MakerDAO to create DAI, a decentralized USD-based stablecoin.
Then that user can block that same ETH in another protocol, and it doesn’t end there, since different protocols allow different lending, borrowing, and replication practices.
DeFi is much more than a market application
Only about 3.85% of Ether and 0.18% of Bitcoin (BTC) are blocked in DeFi, which means there’s still plenty of room for growth. Wrapped Bitcoin (wBTC) is the most popular way to tokenize Bitcoin in the Ethereum blockchain and approximately 50% of its market cap of $274 million is locked in Compound. RenBTC, a decentralized version of wBTC, is also beginning to gain relevance as a gateway to DeFi.
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Ether remains the most popular crypt currency within the DeFi ecosystem, representing 50% of the total blocked value, while BTC represents only 10%. Stablecoins represent 33% of the total blocked value and the rest is made up of other ERC-20 tokens such as the Basic Attention Token (BAT), Augur (REP) and others.
Is there room to grow?
Regardless of the total blocked USD value in the DeFi ecosystem, there is clearly plenty of room for growth. The blocked value figure is likely to continue to increase as yield farming and other forms of lending gain attention.
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While many believe that DeFi is the future of finance, the emerging sector still has significant security issues to deal with and must do so as it faces what appears to be an exciting market that reminds us of the ICO boom of 2018. This leads to poorly planned and rushed projects like Yam Finance, which was launched without a proper audit of its code.