Decentralized finance, or DeFi for short, has been kicking up quite the fuss among cryptocurrency enthusiasts, traders, and investors for much of 2020.
If you haven’t already heard, DeFi is the name for the protocols, platforms, tools, services, and products that act as decentralized versions of those found in the world of traditional finance (TradFi). Though a relatively new niche, the DeFi industry already encompasses a huge range of platforms, ranging from decentralized lending and borrowing protocols to automatic market-making, yield farming, and cross-chain issuance platforms, plus a whole lot more.
The staggering rate of growth in the DeFi industry has seen many compare it to the 2017 initial coin offering (ICO) boom, which arguably helped propel Bitcoin and most other cryptocurrencies to their highest ever values.
Here’s what all the fuss is about.
DeFi Platforms are Growing Fast
Although the DeFi industry has been on an almost unceasing uptick since late 2017, it really began to pick up the pace in early 2020, when the total value (TVL) of assets locked up in DeFi protocols reached over $1 billion for the first time back in February. The TVL of DeFi protocols is strongly related to the number of users and is currently one of the best measures of growth we have.
Image: DeFi Pulse
Since February, the industry has further exploded in size and reached a peak of almost $9.5 billion in TVL earlier this month. Much of this growth was catalyzed by the meteoric rise of DeFi lending platforms like Aave and Maker in recent months—both of which managed to break the $1 billion TVL mark in the last two months.
Likewise, DeFi has also given rise to what many consider to be the next iteration of decentralized exchange platforms, including Automatic Marketing Making platforms Uniswap and SushiSwap, as well as stablecoin trading aggregator Curve Finance—all of which have seen incredible uptake among cryptocurrency traders, due to their low fees, privacy, and massive potential.
People are Making Money
Just like the ICO boom, the current DeFi trend has proven to be extremely lucrative for those in the know, as many of the most promising DeFi projects have gone on to achieve incredible gains compared to their initial listing price.
Perhaps the best example of this is Yearn Finance, a liquidity aggregation platform that allows users to maximize the return on their investment when contributing to lending services like Aave, Compound, dYdX etc. The Yearn Finance token (YFI) was first tracked trading at $34.53 by CoinGecko in mid-July and has since gained a staggering 85,832% to reach its current value of $27,378 each. At its peak, the token was valued at just north of $35,000, providing the earliest investors a return of 1,000x.
Although Yearn Finance is somewhat of an exception, DeFi assets, on the whole, have experienced impressive growth in recent months. DeFi cryptocurrencies now account for 4.3% of the market capitalization of all cryptocurrencies, more than doubling since the start of the year.
It’s Still Early Days
The decentralized finance industry can still be considered very much in its early days. Because of this, there is an information war of sorts going on, which sees those in the know access more lucrative opportunities and find out about promising projects earlier than most.
But times are changing. There is now a wealth of resources to help spot out promising projects early on, just before they’ve had the chance to really kick off. This includes NewsCrypto, a platform that provides trading tutorials and market analysis tools, and also produces weekly articles performing technical analysis on the top three DeFi coins.
Not only this, but there are a number of websites solely dedicated to tracking the growth of cryptocurrencies in the DeFi niche, including DeFi Pulse, DeFi Prime, and CoinGecko DeFi. Through these platforms, you can keep up to date with the latest developments in the industry, and potentially identify undervalued projects, hot picks, or maybe even the next DeFi unicorn.