Issues on Ethereum and DeFi as an emerging market
Ethereum, the second most popular crypto asset by market cap, has seen its growth halted by notorious scalability issues and high gas fees. However, Decentralised Finance (or DeFi) which is built on the Ethereum Network is a different story.
It was only as recent as the summer of 2020 when DeFi started to gain widespread traction amongst investors, leading to this period becoming affectionately coined as ‘the DeFi Summer’.
Although DeFi is a relatively new concept, it gained $1bn in TVL over its first three years, which put the sector in the top 40 most valuable digital assets, [according to CoinGecko]. The chart above shows the exponential growth of total value locked (TVL) on DeFi since, October 2017. As we can see, the TVL has skyrocketed from $1bn to over $25bn in the past 6 months, which has provided investors with a plethora of new investment opportunities.
DeFi exposes investors to digital assets through more quasi-traditional finance applications. With the emergence of new decentralised applications, or dApps, the continued growth and use of DeFi has monumental future potential. To put it into perspective, the DeFi ecosystem accounted for over 95% of dApp volume in 2020, equalling to US $270 billion.
However, the CryptoKitties boom in 2017 really highlighted the scalability issues on the Ethereum Network as the popularity that ensued from the launch of the NFT platform heavily congested the network. Learning from this experience, the creators of CryptoKitties have recently launched their own blockchain, Flow. Since its release to the market on January 29th 2021, its token has generated 4500% in returns for investors.
What this tells us is that DeFi is very much emerging as a fundamental part of the Ethereum Network. The proposed fixes for Ethereum’s network issues are years in the making, which is time that developers cannot waste while they’re working to meet the increased demand from investors who want to put their digital cash to work in a market with significantly deeper pockets. DeFi is a space to watch closely, as new investment opportunities are bound to emerge.
Tom Salter, Digital Asset Analyst at ByteTree