Decentralized finance (DeFi) has continued to erupt in popularity, with capital flooding into this space at an amazing pace. Just today, the price of the Ethereum-based Yearn.finance (YFI) hit $38,000, meaning the coin now has a market capitalization in excess of $1 billion.
Stepping back, all the coins pertaining to this space have cumulatively reached a value of $16 billion, which is the value of a medium-sized enterprise.
There have been already some calling it a bubble, pointing to the similarities in the growth trajectories and market trends of DeFi in 2020 compared to the entire crypto market in 2017 and early 2018.
But, recent data shared by a trader indicates that there is likely further room for DeFi to grow.
Ethereum DeFi only has seen 400,000 users thus far — meaning there’s growth to come.
According to data from Dune Analytics, an on-chain data provider, shared by a crypto trader, Ethereum-based decentralized finance protocols have only been used by 400,000 users. A user, per Dune, is a unique address using a protocol; as users have more than one address (I personally have at least nine that have interacted with DeFi protocols at one point), this is an extreme overestimation.
The trader who shared this data noted that this is a sign that the “DeFi bubble isn’t even close to popping yet.”
To put the 400,000 user metric into perspective, here’s some context:
- Robinhood has approximately 14 million users.
- There are around 20 to 50 million people estimated to have owned Bitcoin or currently own BTC.
- An estimated 33 percent of American adults have non-retirement investments, implying around 80 million individuals with brokerage accounts.
What will drive the growth in DeFi?
With DeFi seemingly poised to grow higher, it’s important to point out what stands to increase the size of this market.
A foremost growth catalyst seems to be capital migrating from defunct cryptocurrencies to DeFi. Eric Conner, a podcaster in the space, wrote earlier this year that the “ghost chains” represent a $50 billion growth opportunity for Ethereum and DeFi:
“The ghost chain reckoning is coming. There is well over $50bn in market cap value for chains no one uses. They will all be usurped by DeFi apps with actual use by the end of this market cycle.”
Andrew Kang of Mechanism Capital has discussed DeFi development reaching an inflection point ” with more on-chain liquidity, better development tools, successful case studies, education, and much more.
A risk to DeFi in the nearer-term, though, is transaction fees. As reported by CryptoSlate, Jacob Franek, a co-founder of blockchain data firm Coin Metrics, said that high Ethereum transaction fees could be a stop to the bull run.
“Not yet just saying it places a natural hard cap on how far this can run. Traders will only pay that much if they’re perfoming significantly well,” Franek concluded in a reply to someone who commented on his opinion.
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