Total Value Locked in DeFi Might be Overrated
The total USD value held in decentralized finance (DeFi) protocols recently exceeded the $6 billion line, as per on-chain data resource, DeFi Pulse. At the moment, the figure shows $6.32 billion, after increasing almost six-fold since it attained the $1 billion mark about three months ago.
The exponential rise witnessed this year can mainly be attributed to the advent of yield farming and the launch of Compound protocol. Still, Encode Club founder Damir Bandalo, says that this figure is rather inflated. Instead of $6.32 billion, Bandolo claims $3.5 billion is a better estimate of the value locked in the top 15 DeFi protocols.
Although the numbers shown by several DeFi data resources may be slightly inflated, this is something that also occurs in regular finance as one Twitter user noted. The complete value held in DeFi protocols can be challenging to calculate as one dollar can generate its value multiple times over in locked value.
For instance, a user can lock Ether (ETH) in MakerDAO in order to produce DAI, a decentralized USD-based stablecoin. A user can then lock the same DAI in another protocol, and the duplications don’t stop there as various protocols allow different lending, borrowing, and duplication practices.
Still, DeFi Pulse co-founder defended the calculations on the website in a Twitter thread and said substantial efforts are made to make sure of their accuracy. He also said that Bandalo had made errors on its own.
“We work really hard to remove double-counted assets from @defipulse exactly to avoid this problem. The TVL only passed $6B today, for the first time ever, and has never sniffed “$6.7B.” If you find one we missed, please let us know,” he said.
DeFi is More Than Just Market Cap
Only approximately 3.85 percent of Ether and 0.18 percent Bitcoin is locked in DeFi, which means that there is still room for growth. The most common form of tokenized Bitcoin on the Ethereum blockchain is wrapped Bitcoin (wBTC), and around 50 percent of its $274 million market capitalization is held in Compound.
RenBTC, a decentralized variant of wBTC is also starting to gain traction as a gateway to DeFi. Ether, on the other hand, is still the most popular cryptocurrency in the DeFi ecosystem, being around 33 percent of the total value locked, while BTC only accounts for 10 percent. Stablecoins account for 33 percent of the whole value locked, and the rest is composed of other ERC-20 tokens, such as Basic Attention Token (BAT), Augur (REP), and others.
Is There Any More Room for Growth?
Irrelevant of the total USD value locked in the DeFi ecosystem, there is definitely a lot of room for growth. It is probable that the value held figure will keep increasing as yield farming and other types of lending gain traction.
Although many believe DeFi is the future of finance, the emerging sector still has significant security issues to address and must do so in order to deal with what it appears to be a hyped up market reminiscent of the 2018 ICO hype.
CoinMarketCap is a website that provides cryptocurrency market cap rankings, charts, and more. It was purchased by Binance for $400M in 2020.
Andreas Townsend Author
I am a technical writer, author and blogger since 2005. An industry watcher that stays on top of the latest features, extremely passionate about finance news and everything related to crypto.