However, according to founder Charles Hoskinson, DeFi is in an economic cycle where the market is struggling to gauge its worth. In a recent interview, he claimed:
“I think DeFi is in a bubble and it always happens – NFT and DeFi are the latest.”
The CEO also compared it to the 2017 Initial Coin Offering (ICO) revolution. However, it’s worth noting that Hoskinson was quick to make it clear that the DeFi bubble “doesn’t necessarily mean it’s a bubble”. Instead of this:
“You see new projects with very small development teams, not a lot of liquidity, and they come out with billions of dollars.”
Banks and financial institutions that recognize their potential also rely heavily on the DeFi area. Recent estimates suggest that the DeFi market could see $ 1 trillion in inflows from institutional investors in the coming years. That is, if the top 100 banks invest at least 1% of their assets under management (AUM) in DeFi.
But should they? Yes, the consensus is there. For example, according to Philip Gradwell, Chief Economist at Chainalysis:
“DeFi is the next logical step for crypto investors.”
Chain analysis also found that large investors are behind the growth in DeFi adoption. It has been called “one of the fastest growing and most innovative areas” of the cryptocurrency ecosystem, especially in developed countries like the United States.
What else does DeFi need to start its next phase?
IOHK CEO Hoskinson pointed out two things that could accelerate DeFi adoption:
“First of all, you need a dapp store … the other thing is we have to start thinking about cross-chain in DeFi.”
The Dapp Store, to which Hoskinson is referring, here means something like the Google Play Store or the iOS App Store. Interestingly, Hoskinson also believes “the next generation of DeFi are ready to take hold” and concludes the SEC-led crackdown.
Last month, SEC chairman Gary Gensler alluded to DeFi’s involvement in regulation. Bureaucracy, in the opinion of the person running this organization, will lead to “better support for any regulation introduced” as “new DeFi protocols will be developed to compete with them”.
However, not all will do well in this “second wave of DeFi”. Beyond cost predictability:
“Future winners in the DeFi space will have liquidity and interoperability as well as multi-chain portability.”