The DeFi boom started in 2015 when the Ethereum network went live, and since then it has grown by 33x to 1.2 million per day on the Ethereum blockchain alone, and it would be even bigger if other chains were added to this figure.
The current DeFi sector “represents only 0.1% of its maximum potential,” writes Artem Tolkachev. As he says, “DeFi is a natural product made possible by blockchain technology and has the right and ready infrastructure to propel the technology to a bigger playing field.”
What has contributed to DeFi growth?
The answer is the use of DeFi services such as Uniswap, which facilitates over $1 billion swaps each day, as well as lending and borrowing protocols such as Aave, Compound and BondAppetit. Combined they form a market worth tens of billions.
The TradFi (traditional finance) market is of course much bigger at trillions of dollars, and currently DeFi can’t offer the same extensive list of services as TradFi. At the moment, DeFi is mostly confined to lending, borrowing, decentralized trading and yield-aggregating, but it also has the advantage of playing an important role in the future of NFTs and in Web 3.0, otherwise known as the Metaverse.
The key to DeFi growth
The TradFi market is ripe for disruption, writes Tolkachev, and that is where DeFi can excel. For example, consumer payments are worth $500 billion per year in revenue for banks worldwide, but this could be tapped into with a frictionless UI, a global stablecoin and broad acceptance points.
And in capital markets, security tokens are an inevitable trend that regulators will eventually need to approve and construct the regulatory framework so that centralized and decentralized exchanges – at least the ones that adhere to the know-your-customer (KYC) requirement — can tap into the trillion-dollar TradFi equity market.
There is also the 1 billion plus daily global credit card transactions to be captured, and even moving 1% of them onto the Ethereum blockchain, or another of the DeFi-friendly smart contract blockchains, would multiply the number of its transactions by eight.
And there is the revenue from DeFi protocols. At the moment this is estimated to have a value of $5 billion annually, which is a fraction of the $2.3 trillion global retail banking revenue; $2 trillion global cross-border payment revenue and $35 billion global stock exchange revenue. Tolkachev says, “The TradFi industry is so lucrative that seizing a 1% market share means 10x-ing the DeFi revenue.”
Furthermore, it is estimated that DeFi has not really yet penetrated the general crypto user market, with only 5% of the 221 million global crypto users accessing DeFi services, revealing a massive untapped market for DeFi that can be captured as the UI/UX is improved.
DeFi is only three years old, so it needs to be given time to grow. The DeFi builder community has grown stronger in 2021 with more programmers from the traditional startups and big tech joining the blockchain and DeFi scene. Tolkachev says, “with the resources and talent flowing into the space now, growing 100x in the next 5 years is not a dream, it is inevitable.”