Ethereum DeFi Is Kicking Into “High Gear”: Why This May Not Last for Long

Decentralized finance has been deemed one of Ethereum’s killer use cases over recent months. The concept of bringing financial applications into a blockchain format has been deemed innovative by many. Yet there are some that doubt that DeFi’s growth will last for long, especially without proper technological improvements. Ethereum DeFi Is “Kicking Into High Gear”: […]
Nick Chong
Posted by Nick Chong June 14, 2020 2 Mins Read
Decentralized finance has been deemed one of Ethereum’s killer use cases over recent months. The concept of bringing financial applications into a blockchain format has been deemed innovative by many. Yet there are some that doubt that DeFi’s growth will last for long, especially without proper technological improvements. Ethereum DeFi Is “Kicking Into High Gear”: […]

Decentralized finance has been deemed one of Ethereum’s killer use cases over recent months. The concept of bringing financial applications into a blockchain format has been deemed innovative by many.

Yet there are some that doubt that DeFi’s growth will last for long, especially without proper technological improvements.

Ethereum DeFi Is “Kicking Into High Gear”:

According to DTC Capital head Spencer Noon, there are five signs showing that “DeFi adoption is kicking into high gear.” Noon conveyed those five trends and they are as follows:

  • Decentralized finance “blows away” centralized finance crypto venues “on USD borrowing rates for BTC.”
  • The current supply of MakerDAO’s DAI stablecoin has reached an all-time high.
  • Rebalances on the TokenSets trading application has reached an all-time high, suggesting growing adoption.
  • The total locked value in the Synthetix application has “continued to rise.”
  • The liquidity on Balancer Labs has more than quintupled to $32 million since the start of the month. ” 5 pools have surpassed the $1M mark in liquidity and 30 pools hold at least $100k,” Noon added.

A Plateauing Trend… At Least For Now

While there is this evidence, a top investor in the space thinks that Ethereum may “plateau” in the near term. He cites a confluence of factors like the slow block times and the relatively high cost of transactions:

“You just can’t build global scale trading systems for lots of users on POW chains. It just doesn’t work. High latency –> all kinds of negative second order effects. So I think for now we are near a plateau for DeFi – measured in ETH terms (not USD) – until the core latency problems are solved,” wrote Kyle Samani of Multicoin Capital. Multicoin Capital does have an interest in DeFi, making these comments more of a constructive criticism than a baseless attack.

DeFi could also begin to stall due to the financial facet of the crypto industry seemingly being focused on large holders, as opposed to the more common crypto “newb” or novice.

An Ethereum commentator remarked that “DeFi is indeed a whale’s game,” referencing how it is only the large holders that have the potential to earn profits.

“$10 txs make no sense. $100 txs are quickly becoming silly. $1000 txs is becoming the new baseline. You probably need to be punching in the thousands for defi to be a somewhat logical playground,” he remarked. This was likely in reference to how DeFi transactions can cost in exccess of $5, making small transactions bascially illlogical.

There are technological improvements like Ethereum 2.0 and Optimistic Rollups that could amend these issues. Yet these improvements are still a while away from mainstream implementation in ETH infrastructure.

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Ethereum DeFi Is Kicking Into "High Gear": Why This May Not Last for Long
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