The market capitalization of cryptocurrency reached $2.32 trillion as September came to an end. This growth has been largely due to the decentralized finance market (DeFi). According to data from Dappradar, the total value locked (TVL), in DeFi protocols, grew by more than 20% from $113.5 billion on September 28 to $137 billion on October 6.
Even the Bank of America (BoA), a global bank giant, has expressed its optimism about DeFi and nonfungible tokens (NFTs). BofA Securities, a BoA subsidiary, published an Oct. 4 report that evaluated the potential of crypto assets beyond bitcoin.
(Bitcoin’s strength). It can execute automated programs (“smart”Tokens like Ether, Cardano and Solana that can do more then securely record payments contracts), such as making a payment following an event. The report states that Decentralized Finance (DeFi), where smart contracts can automate traditional finance processes, is the case.
It also spoke about tokenization being likened to the early days internet.
Johnny Kyu (CEO of KuCoin), discussed the rapid growth of DeFi markets in Cointelegraph. He explained:
“The DeFi market is gaining popularity as more people realize that smart contracts can be an alternative to traditional loans or bank deposits. Private investors are shifting their money away from traditional financial systems to decentralized ones, as evidenced by the amount of DeFi funds.
The TVL for the DeFi sector has been affected by the huge price rise of native tokens. Kyu attributes this growth to the attractive rates offered on DeFi platforms.
Dappradar recently reported that the industry’s TVL increased 53.45% in quarter three of 2021. The daily average UAW (unique active wallets) that are linked to any decentralized app was 1.7 million in September. The average UAW for the quarter is 1.54 millions.
Cointelegraph spoke to Fernando Martinelli, CEO of Balancer Labs, about the importance and future prospects for the DeFi base Ethereum has established. He stated, “A new generation of DeFi projects is building upon the infrastructure that the first generation established, bringing new uses cases and advanced products to DeFi power user.”
Martinelli stated that institutional involvement is increasing TVLs in established “safe” protocols. DeFi platforms offer large yields, which is driving retail investors away from centralized platforms to the DeFi space. DeFi is now ready to take the next step in its growth thanks to this growing adoption by all types of investors.
The next generation
Because of its smart contract functionality, the Ethereum blockchain was the first platform that DeFi used to create its ecosystem. Other blockchain networks have deployed smart contract functionality through layer-1 and layer-2 solutions. These networks include Terra, Terra, Terra, Solana and Avalanche. The Cardano network was the site of smart contract deployments as part of the Alonzo hardfork.
Although these networks have grown organically, there is one problem with the Ethereum blockchain. It could have contributed to the growth. As part of the London hardfork, the EIP-1559 proposal included the burning ETH tokens to create “ultrasound money”, increase scalability, and lower gas fees.
Although the fees aren’t as outrageous as they were during the May bull run, there have been instances where the average transaction fee on the Ethereum network has seen a dramatic increase in the past few weeks. The fee reached $21.29 on Sept. 7 and the gas price reached a four-month high on Sept. 27 at $25.43.
Martinelli stated, “There’s no doubt that high gas prices on Ethereum — especially severe in recent times due to congestion from NFTs – has helped drive rapid adoption of other networks.” (..) Layer 2 solutions have helped Ethereum scale and we are excited to see the ongoing developments in this area.
This growth is also driven by the continued popularity of NFTs. Dappradar’s report mentioned an exponential growth in the NFT market. The market generated more than $10.67 billion in trading volume during Q3. This represents a 704% increase over the second quarter, and a staggering 38,060% increase in year-on-year.
While the majority of NFT sales in 2017 were made on the Ethereum blockchain, blockchains such as Binance Smart Chain and Polygon are now catching up. A NFT from Solana Monkey Business’s largest collection, which is currently worth over $2.1 million, was recently sold for 13,027 Solanas (SOL). This broke the previous NFT record.
Cointelegraph spoke to Shane Molidor (global head of business development, crypto trading platform AscendEX) about the potential for NFTs.
“Due to rapid growth of this market, some might say that the market is a bubble. But I believe that NFTs offer immense value propositions beyond the collectivity of JPEGs and images. NFTs can be used not only to track digital items, but also collectibles, fractionalized resources, and virtual worlds.
Hacks, bugs, and mistakes
There have been setbacks in the rapid growth of DeFi’s ecosystem. There have been many exploits and hacks during the growth phase due to a lack of understanding and scrupulous players.
DeFi’s interest rate protocol Compound Finance revealed that its recently implemented Proposal 062 had a token distribution flaw. Inadvertently, this flaw rewarded users $70 million worth of COMP tokens. Another $65 million worth of COMP tokens is at risk in the aftermath. The code update wouldn’t take place for three days because of a time-lock. The bug cost $162 million, making it a costly error. Protocol approved a solution on Oct. 7.
Bittfinex, a cryptocurrency exchange, paid $23 million in transaction fees to transfer $100,000 worth of Tether (USDT), on the Ethereum blockchain, to DiversiFi, a layer-2 subsidiary platform. This was another example of a technical error. The goodwill of the miner won out and he returned the funds.
Institutional investors and retail investors can be deterred by hacks, bugs, and other errors, despite the DeFi markets being so lucrative. Because retail investors lack the same sophistication and knowledge as institutional investors, they are more vulnerable to financial losses. Retail investors often use them as a guideline. Molidor told Cointelegraph:
“DeFi’s retail and institutional entrance is almost like a feedback loop. Institutions begin to look at the industry closely in order to identify economic opportunities. The space becomes more visible as institutions join DeFi. DeFi is now more prominent in the mainstream and retailers are more aware of the economic benefits and rewards it offers.
These negative examples are just a part of the DeFi market’s vision, which is trying to revolutionize finance. DeFi protocols will allow investors to be more independent and innovative, which will only help to grow the market.
Eileen Wilson –Technology and Energy
My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.