As the DeFi (Decentralised Finance) space rapidly expands - with over 180,000 borrowers and lenders, $10B USD of originated lending since Q4 2019, and $1B USD in active loans - it’s a good time to reflect on what some are now calling blockchain’s ‘killer’ application.
Unlike traditional lending platforms, there are no major banks involved in the space. Loans are formed in real-time between mostly anonymous parties, with automatically calculated collateral and an ability to enter and exit the loan at any time. Interest rates are variable and volatile, but in a global market of mostly zero, sometimes negative yields on cash, the ability to earn rates sometimes approaching 10% is attracting new users.
Additionally, these platforms have allowed marketplaces to innovate by offering yields on alternative assets such as gold, providing not just access to a range of asset classes, but an additional 3% interest annually on your holdings (as at June 2020). Show me anywhere else you can earn 3% on your gold holdings!
It’s important to consider how DeFi is still in its early stages. Already we are seeing rapid growth and importantly, decreased technical risks as the platforms mature.
With this growth, alongside the combined market cap of stable coins comfortably exceeding $10B, we are starting to see Ethereum take shape as the underlying blockchain to many DeFi platforms in delivering improved financial services to millions. DeFi is a promising movement that is still gaining traction while establishing its most attractive use cases.
Alongside lending, we are seeing massive innovation in the following areas:
* Insurance (e.g, Nexus Mutual)
* Predictions Market (e.g., Augur and others)
* Decentralized leverage trading (e.g., dYdX)
* Synthetic assets (e.g., UMA)
DeFi is still in its early stages, but with so many innovations constantly appearing in the space, we are excited to see what the next generation of financial solutions will look like.