In late September, cryptocurrency markets bounced back generously from the so-called “September Curse” to reach a market cap of $ 2.32 trillion. The decentralized finance (DeFi) market is an integral part of this growth. Total Blocked Value (TVL) in DeFi protocols increased by more than 20%, from $ 113.5 billion on September 28 to $ 137 billion on October 6, according to data from Dappradar.
Bank of America (BoA) – a global banking giant – also revealed its bullish outlook on DeFi and non-fungible tokens (NFTs). In an Oct.4 report by BofA Securities – a subsidiary of BoA – the company assessed the reach of cryptocurrencies beyond “just bitcoin.”
(The Strength of Bitcoin) can run automated programs (smart tokens like Ether, Cardano, Solana and others with blockchains that can do more than securely register payment contracts) such as making a payment after an event. This is decentralized finance (DeFi) where smart contracts automate the manual processes of traditional finance, ”the report states.
He also compared tokenization with the early days of the internet and talked about decentralization and tokenization of many aspects of finance as it is today.
Cointelegraph discussed rapidly expanding DeFi markets with Johnny Kyu, CEO of cryptocurrency exchange KuCoin. He explained:
“The popularity of the DeFi market is increasing as more and more people begin to understand that a smart contract can be a viable alternative to a traditional bank loan or deposit. The amount of funds frozen in DeFi reflects the market uptake of private investors shifting their money from the traditional financial system to decentralized industry. “
While the DeFi industry’s TVL has seen an increase due to the massive increase in the prices of native tokens from various projects, Kyu also attributes the growth to the attractive rates offered by DeFi platforms.
A recent report by Dappradar revealed that TVL in the industry gained 53.45% quarter-over-quarter in the third quarter of 2021. In September, Unique Active Wallets (UAW) connected to any decentralized application reached a daily average of 1 , 7 million. The UAW quarterly average is 1.54 million.
Cointelegraph spoke with Fernando Martinelli, CEO of Balancer Labs, about the importance of the DeFi base established by Ethereum. He said: “A new wave of DeFi projects builds on the infrastructure put in place by the first generation, bringing new use cases and more advanced products to experienced DeFi users.
Martinelli said that greater institutional involvement pushes TVLs towards well-established “safe” protocols. Furthermore, the high returns offered by DeFi platforms are moving retail investors from centralized platforms to the DeFi space. This growing adoption by various categories of investors allows DeFi to move to the next stage of its growth.
The next generation
The DeFi ecosystem started on the Ethereum blockchain due to the smart contract functionality it offered. However, many other blockchain networks have since implemented smart contract capabilities in their networks via Layer 1 or Layer 2 solutions. The most prominent of these networks are Binance Smart Chain, Solana, Avalanche, Terra, and Polygon. More recently, the Cardano network has seen the implementation of smart contracts as part of the Alonzo hard fork.
While the growth of these networks could be seen as organic, there is a major problem with the Ethereum blockchain that may have contributed to this growth: gas tariffs. The EIP-1559 proposal which was part of the London hard fork included burning ETH tokens with the aim of making money for ETH ultrasound, improving scalability and reducing gas costs.
However, even though the fees are not as absurd as before During the peak of the bull run in May, there have been a few instances in the past few weeks where the average transaction fees in the Ethereum network have seen a huge spike. In particular, on September 7, the rent rose to $ 21.29 and on September 27, the price of gasoline hit a four-month high of $ 25.43.
Martinelli said: “There is no doubt that high gas tariffs on Ethereum – particularly severe recently due to NFT congestion – have helped spur the rapid adoption of other networks. (..) Layer 2 solutions are helping Ethereum to evolve and we are excited to see developments taking place in this space.
The continued popularity of TVNs is also an important driver of this growth. The aforementioned Dappradar report stated that the NFT space has also grown exponentially. In the third quarter, the market generated over $ 10.67 billion in transaction volumes, a 704% increase over the second quarter and a massive 38.060% year-over-year increase.
While at the beginning of the year most of the major NFT sales were in the Ethereum blockchain, now blockchains like Binance Smart Chain, Solana, Polygon, Avalanche and Tezos are starting to catch up. Recently, an NFT from the largest collection in the Solana ecosystem, Solana Monkey Business, was sold for 13,027 Solana (SOL), with a current value of over $ 2.1 million, beating the platform’s previous NFT record.
Shane Molidor, Global Business Development Manager for the AscendEX cryptocurrency trading platform, spoke to Cointelegraph about the potential of NFTs:
“Due to the rapid growth of the market, some may say the market is a bubble, but I think NFTs offer huge value propositions beyond just the JPEG or image community. NFTs can be used to record ownership of not only digital items, but also collectibles, divided assets, and even virtual worlds. “
Errors, bugs and hacks
The rapid expansion of the DeFi ecosystem is not without setbacks. Due to a combination of lack of understanding and dedicated gamers, there have been several exploits and hacks during the growth phase.
On September 30, the DeFi Compound Finance Interest Rate Protocol announced that there was a token distribution bug in its new 062 proposal. This flaw accidentally rewarded users with $ 70 million in COMP tokens. Thereafter, an additional $ 65 million in COMP tokens is at risk as the code update won’t take effect for the next three days due to a time lock. In total, the bug of “giving away” $ 162 million, which makes this mistake extremely costly. On 7 October the protocol ride a proposal to solve this problem.
In another case of glitch, cryptocurrency exchange Bittfinex paid over $ 23 million in transaction fee to transfer $ 100,000 from Tether (USDT) to the Ethereum blockchain on a Tier 2 subsidiary platform, DiversFi. However, the miner’s goodwill prevailed when he returned the funds to the exchange.
Despite the profitable nature of the DeFi markets, the widely covered hacks, bugs and errors could discourage institutional and retail investors. Retail investors are even more susceptible to such financial loss events due to the lack of sophistication and knowledge that institutional investors possess. Therefore, they often serve as a point of reference for retail investors. Molidor told Cointelegraph:
“The entry of institutions and retailers into DeFi is almost like a feedback loop. As more and more retail users enter the e [the] as market capitalization increases, institutions begin to take a closer look at the industry to explore economic opportunities. When institutions enter DeFi, the space receives more visibility. From this visibility, DeFi enters the mainstream discourse and, once again, more and more retail users are familiar with the economic benefits and rewards provided by DeFi.
But these negative examples are only a small part of the evolution of the DeFi market, which seeks to revolutionize finance. The independence of the user and the innovation that DeFi protocols offer to investors will only serve to further expand the space.
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