Is DeFi's meteoric rise sustainable, or is another bubble about to burst?
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Total DeFi users have grown by 23% since early June, while over $2 billion worth of Ethereum and Bitcoin are now locked in DeFi.
DeFi is still in its early days, but it is widely used by the crypto-savvy.
In recent weeks, we have seen a boom in decentralized finance (DeFi). The latest data shows that since the beginning of June, the total number of DeFi users has increased by 23%, while more than $2 billion worth of Ethereum and Bitcoin are now locked in DeFi. Transaction volume on Ethereum-based DeFi dapps has increased by almost 800% since April.
This is driven by the rise of liquidity mining, where DeFi platforms offer token rewards in exchange for users’ deposits. This has led to “unintended consequences” as users race to snap up tokens, creating an artificial demand for certain assets.
The big question is: Is DeFi's meteoric rise sustainable, or is another bubble about to burst?
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Why is there a DeFi boom?
Itamar Lesuisse, co-founder and CEO of DeFi-friendly crypto wallet Argent, said that DeFi highlights the power of a community-owned network, unlimited innovation and having a financial system that is global from the start.
Lesuisse told Decrypt: “Right now, it’s still an early experiment and caters mostly to crypto users, but it’s just the beginning. Over the next few years, we look forward to it solving big problems for mainstream users around the world; we I think the user experience is already better than traditional finance in many ways.”
“The [DeFi] user experience is already in many ways better than traditional finance – Itamar Lesuisse”
Batlin said:
“For the vast majority of people, it’s too complicated to understand at first. We’re now at a stage where people can easily leverage and find value. On top of that, one-click services from the likes of Instadapp are enabling DeFi strategies, For example, flash loans to facilitate the use of ordinary investors."
Now, experts are no longer needed, and the feasibility of yield farming is expanding to a wider audience, he added. This is a feature that Trustology will roll out through its API, but with the necessary institutional controls and security. Users can easily access DeFi applications and soon staking on ETH 2.0 without worrying about security like those who self-host.
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Will DeFi really go mainstream?
According to Julian Sawyer, head of Europe at cryptocurrency exchange Gemini, while the concept of decentralized finance (DeFi) is sound, “it’s usually characterized by the fact that people are always talking about it booming.” develop."
Sawyer said,
“It is questionable whether [DeFi] is on the mainstream agenda of central banks, regulators, major institutions and consumers. - Julian Sawyer”
Sawyer added that for DeFi to gain widespread adoption, the DeFi space needs to develop controls and protections that allow it to interact with or exist in the same world as the existing financial system. These include implementing effective compliance measures to combat financial crime and fraud, such as the ability to assess the wealth and source of funds run through the app.
“While the banking and financial system is not perfect, it works for consumers, retailers, corporations, and governments because it’s backed by standards, processes, and controls that everyone can trust,” Sawyer said, adding that DeFi It is difficult to build credibility and trust, and without building bridges with existing institutions and working with regulators, traction can be gained.
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While many fintech companies are just shiny interfaces on old financial infrastructure, DeFi is a whole new financial system. This has implications for the wider industry.
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“If it lives up to its potential, it will make finance more accessible, fair and transparent. It can innovate faster and be more capital efficient than traditional finance,” Lesuisse told Decrypt.
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From 2017 to 2018, several DeFi tokens were more useful than cryptocurrency tokens, Spencer said. They often have value extraction mechanisms (via dividends or burns), which means their value can actually be modeled, which is a big departure from previous useless utility tokens.
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“What’s more, consumers can immediately see the advantages that DeFi products offer, as they mimic products we already use in our daily lives, but in a more transparent, efficient and democratic way.”
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Faced with challenges, will the bubble burst?
Sawyer said:
He said:
“In viable use cases, DeFi can indeed serve consumers better, more efficiently and faster. The industry as a whole needs to focus on developing and communicating the value these applications can bring to consumers and businesses.”
We should not underestimate the challenge in the short term, nor should we get lost in the recent surge in assets locked in DeFi, Lesuisse said.
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