A recently published paper by Federal Reserve Bank of St Louis zoomed in on the decentralized finance boom and Ethereum’s role in it.
The research paper by Dr. Fabian Schär was published on May 2 and hints that if the known concerns and security risks can be addressed, this may lead to significant change in the financial industry. Some of these concerns are related to custodial risks, high transaction costs, speed of transaction and privacy.
“DeFi uses smart contracts to create protocols that replicate existing financial services in a more open, interoperable, and transparent way,” according to Dr. Fabian Schär. He further lauds its efficiency, accessibility, and composability.
“DeFi may lead to a paradigm shift in the financial industry and potentially contribute toward a more robust, open, and transparent financial infrastructure.”
Spectacular growth
In the past year, DeFi’s growth has been massive, with a 700% rise in the total value locked across the ecosystem. Today, that figure stands at an all-time high of around $134 billion across different blockchain according to data from DefiLlama.
In his paper, dr. Schär stresses that smart contracts are the backbone of the entire DeFi ecosystem. He adds that most of the smart contracts run on Ethereum. While there are lots of popular DeFi related tokens, the majority of them are issued on the Ethereum network.
By locking it up, ETH is used as collateral for a vast number of DeFi protocols. It is calculated that almost 10% of total ETH supply is currently locked up.
DeFi may lead to a paradigm shift in the financial industry.
According to Schär, Ethereum’s success caused a wave of innovation built on blockchain technology and has the DeFi sector in pole position for greatness.
“The spectacular growth of these assets alongside some truly innovative protocols suggests that DeFi may become relevant in a much broader context and has sparked interest among policymakers, researchers, and financial institutions,” Schär writes.
Bullish momentum
The research paper adds to the bullish momentum for Ethereum which has seen it outperform Bitcoin this month, having set an all-time high of $3,523.59 in the past hours.
DeFi is crypto’s big thing right now. Consider it a little like how Initial Coin Offerings (ICOs) were hot back in 2017.
Some of the most popular projects are lending protocols such as Aave and Compound. Here you can borrow cryptocurrencies instantaneously. If you can prove you can pay back the loan in a single transaction, you can loan large amounts as well. Another way to make money is by earning interest from lending out your crypto.
The post DeFi is booming and can change the financial industry as we know it appeared first on iGaming.
Source: Igaming
