DeFi picks up speed as alternative blockchains and NFTs explode. At the end of September, the crypto market recovered spectacularly from the so-called “September curse” and reached a market capitalization of 2.32 trillion US dollars. Decentralized financial markets (DeFi) are an essential part of this growth. Total Value Locked (TVL) in DeFi logs has increased more than 20%, from $ 113.5 billion on September 28 to $ 137 billion on October 6, according to Dappradar.
Even the Central Bank of the United States (BoA) – a global banking giant – has revealed its bullish outlook for DeFi and unavailability tokens (NFTs). 4 Report from BofA Securities – a subsidiary of BoA – the company assessed the range of crypto assets beyond “just Bitcoin”.
(The power of Bitcoin) can automatically run programs (intelligent “tokens” like Ether, Cardano, Solana and others with blockchain can safely record more than payment contracts), such as post-event payments. His is Decentralized Finance (DeFi), where smart contracts automate the manual processes of traditional finance, ”the report says.
It also compares tokenization to the early days of the internet and talks about decentralization and tokenization in as many aspects of finance as they currently exist.
Cointelegraph discussed the rapid expansion of the DeFi market with Johnny Kyu, CEO of the KuCoin crypto exchange. He explained:
“The DeFi market is growing in popularity as more and more people understand that smart contracts can be a worthy alternative to traditional bank loans or deposits. The amount locked in DeFi reflects market acceptance by private investors who are shifting their funds from the traditional financial system to decentralized industry. “
While the TVL of the DeFi sector has experienced a boost from the massive price increases of the native tokens of various projects, Kyu also attributes this growth to the attractive prices of the DeFi platforms.
A recent report from Dappradar found that TVL in the industry grew 53.45% in the third quarter of 2021 compared to the previous quarter. The quarterly average ADR is 1.54 million.
Cointelegraph spoke to Balancer Labs CEO Fernando Martinelli about the importance of the DeFi facility that Ethereum has set up. “A new wave of DeFi projects is building on the infrastructure that the first generation built, bringing new use cases and more advanced products to the source users,” he said.
Martinelli says that greater institutional involvement will encourage TVLs in established “safe” protocols. In addition, the high returns of the DeFi platforms are shifting private investors from centralized platforms to the DeFi space. The growing acceptance of many different types of investors enables DeFi to move into the next phase of growth.
The DeFi ecosystem started on the Ethereum blockchain due to the smart contract functionality it provided. However, several other blockchain networks have now implemented smart contract functionality in their networks via Layer 1 or Layer 2 solutions, the best known of which are Binance Smart Chain, Solana, Avalanche, Terra and Polygon. Most recently, the Cardano network saw smart contract implementations as part of the Alonzo hard fork.
While the growth of these networks can be viewed as organic, there is one major problem with the Ethereum blockchain that can contribute to that growth: gas charges. The EIP-1559 proposal was launched in London as part of a hard fork that involved burning ETH tokens to ultimately create ETH “super money”, improve scalability and reduce gas charges.
While fees are no longer as ridiculous as they used to be during the height of the May Bull Run, there have been several instances in the past few weeks where the average transaction fee on the Ethereum network has skyrocketed. Notably, the charge rose to $ 21.29 on September 7th and gasoline prices hit a 4-month high of $ 25.43 on September 27th.
“There is little doubt that Ethereum’s high gas fees – which have been particularly acute recently due to NFT congestion – have helped fuel the rapid adoption of other networks,” Martinelli said. (..) Layer 2 solutions help Ethereum to scale and we look forward to seeing developments in this area. “
The continued popularity of NFT is also a major driver of this growth. The Dappradar report mentioned above mentioned that NFT space has also grown exponentially. In the third quarter, the market generated over $ 10.67 billion in trading volume, which was a 704% increase over the second quarter and a massive 38.060% increase over the same period last year.
While most NFT sales were made on the Ethereum blockchain earlier this year, blockchains like Binance Smart Chain, Solana, Polygon, Avalanche and Tezos are now starting to catch up. Recently, an NFT from the largest collection in the Solana ecosystem, Solana Monkey Business, sold for 13,027 Solana (SOL), which is now worth more than $ 2.1 million, breaking the previous NFT record in communications.
Shane Molidor, Global Head of Business Development at AscendEX crypto trading platform, spoke to Cointelegraph about the potential of NFT:
“Given the rapid market growth, some may say the market is a bubble, but I believe NFT has tremendous value proposition beyond aggregating JPEGs or images. NFTs can be used to record not only the possession of digital items, but also collectibles, fractions and even virtual worlds. “
Errors, bugs and hacks
The rapid expansion of the DeFi ecosystem is not without its obstacles. Due to a combination of ignorance and careless gamers, there were several exploits and hacks throughout the development phase.
On September 30th, the DeFi Interest Protocol Compound Finance announced that there was an error in the token distribution in Proposal 062. This bug inadvertently rewarded users with $ 70 million in COMP tokens. Then the other $ 65 million COMP tokens are at risk as the code update will not take effect for the next three days due to the timeout. In total, the mistake cost $ 162 million, making it an extremely costly mistake. On October 7th, the protocol happen a suggestion to remedy this problem.
In another technical failure case, crypto exchange Bittfinex paid over $ 23 million in transaction fees to move $ 100,000 from Tether (USDT) on the Ethereum blockchain to its Layer 2 sub-platform DiversiFi. However, the miner’s goodwill prevailed when he returned the coins to the exchange.
Despite the lucrative nature of the DeFi market, such widespread hacks, bugs, and errors can be daunting for both institutional and retail investors. Retail investors are even more vulnerable to financial loss due to the ignorance and expertise of institutional investors. As such, they are often used as a benchmark for retail investors. Molidor told Cointelegraph:
“Institutional and retail access to DeFi is almost like a feedback loop. When more retail users join the space and [the] As market capitalization increased, institutes began to examine the industry more closely to uncover economic opportunities. When organizations enter DeFi, the space is then given more visibility. It was through this visibility that DeFi entered the mainstream discourse and again more retail users became familiar with the economic benefits and rewards that DeFi offered. “
But these negative circumstances are only a small part of the evolving picture in the DeFi market as it seeks to revolutionize finance. The user independence and innovation that DeFi protocols bring to investors will only serve to expand the space further.