The decentralized finance space has grown exponentially over the past few months.
CryptoSlate data indicates that DeFi coins, most of which are based on Ethereum, now have a market capitalization of over $13 billion. Six months ago, this figure was likely closer to $5 billion, probably even less.
DeFi Pulse data shows that the value of coins locked in DeFi has surged over $8 billion. At the start of the year, this figure was closer to $700 million, meaning an order of magnitude of growth has taken place in under three quarters.
Early investors in the space have made fortunes. There are certain crypto assets in the Ethereum DeFi ecosystem that have verifiably surged tens of thousands, even hundreds of thousands of percent, in the past few months.
Even still, a prominent crypto trader thinks that DeFi remains one of the best investment opportunities in the world.
DeFi is the world’s best investment this decade?
According to Qiao Wang, decentralized finance is the best investment opportunity since Bitcoin and Ethereum.
The former Messari head of product and long-time trader said on the matter on Sep. 8:
“From an investment point of view, BTC pre-2013 and ETH pre-2015 were once-in-a-lifetime asymmetric bets. DeFi pre-2021 is once-in-a-decade IMO (until proven wrong). If you’ve missed the first two don’t miss the latter.”
From an investment point of view, BTC pre-2013 and ETH pre-2015 were once-in-a-lifetime asymmetric bets. DeFi pre-2021 is once-in-a-decade IMO (until proven wrong). If you’ve missed the first two don’t miss the latter.
— Qiao Wang (@QwQiao) September 9, 2020
He’s not entirely wrong.
Technically, DeFi’s growth potential is the size of the entire financial sector, worth trillions across the world, and then some. Because decentralized finance is, well, decentralized, the billions banked already and the billions unbanked can all access this newfangled ecosystem as long as they have a smartphone.
On a shorter-term time frame, DeFi may grow to become the biggest sector in crypto, outpacing the largest blockchains, save for Bitcoin and Ethereum.
Commenting on the potential for decentralized finance coins and protocols to swallow up the “$50 billion” locked in so-called “ghost” blockchains, Eric Conner of Gnosis has said:
“The ghost chain reckoning is coming. There is well over $50bn in market cap value for chains no one uses. They will all be usurped by DeFi apps with actual use by the end of this market cycle.”
Ethereum isn’t unstoppable… yet
While there is that potential, Ethereum and its DeFi space are far from unstoppable at current.
First and foremost, high transaction fees. Over the past few days, it has regularly cost over $10-20 to interact with top Ethereum protocols. Jacob Franek, a co-founder of blockchain data firm Coin Metrics, thinks these high fees will make it hard for DeFi to rally too far:
“Gas prices will put a hard cap on this DeFi bull run. To be expected and probably a good thing… High gas likely new normal.”
There’s also sentiment that the way in which Ethereum’s blockchain is currently set up, with 13-second block times and low data throughput, disallows many complex financial transactions from taking place.
There’s also the specter of regulation in the long run that could pose a threat to stablecoins and other financial mechanisms. The FATF, for instance, recently mentioned “DAI,” despite it being decentralized, as a stablecoin that should be regulated in a similar manner to other online payment mechanisms.