Decentralized Finance (DeFi) is a natural product made possible by blockchain technology and has the necessary infrastructure ready to push the technology into the broader playing field. This space has grown exponentially since the launch of the Ethereum network in July 2015, with the number of transactions on the Ethereum network growing 33 times to 1.2 million per day, and the number of blockchain transactions exceeding millions per day if other chains are enabled.
Most of these transactions originate from DeFi services such as Uniswap, which allows for over $ 1 billion in swap transactions every day, as well as lending and lending protocols such as Aave, Compound, and BondAppetit, with tens of billions of market sizes. While these are large numbers regardless of standard, they represent but a decimal point in the trillion dollar traditional financial industry (TradFi).
DeFi is only superficial about TradFi services
The traditional financial system allows for the exchange of goods and services, including the stock market, debt market, derivatives market, commodity market, payments, etc. This is facilitated by service providers – banks, insurance companies, stock exchanges, financial intermediaries, custodians, etc. that collect a $ 1 trillion commission for the services they offer.
Defi’s core services currently include lending, borrowing, decentralized trading, and revenue aggregation – a relatively short list compared to the comprehensive financial services offered on TradFi. This will not remain the status quo as DeFi developers research and create more services for the ecosystem. Protocols that find the right product / market will experience exponential growth, such as the recent rise in dYdX.
The Trillion Dollar TradFi Market Is Ready For Unrest
Bank client. Global banking revenues are estimated at US $ 2.3 trillion across a variety of consumer finance products including loans / borrowings, mortgage products, payments, and more globally and can be used without UI issues, a stable global currency, and wide acceptance points – Diem’s ambitions for Facebook before regulatory refusal.
capital market. The market value of global stocks is estimated at more than $ 100 trillion, compared to just over $ 243 billion in total locked-in value (TVL) in decentralized finance. Security tokens are an inevitable trend that regulators will eventually need to approve and use the regulatory framework, while centralized and decentralized exchanges that are KYC compliant can take advantage of the trillion dollar TradFi stock market.
insurance. The global insurance industry is another trillion dollar TradFi industry that can be improved with smart contract technology. About a third of the global premium comes from administrative and commission costs, which are generally slightly less than the change for the consumer. Smart contracts provide cheap, fast and accurate execution of insurance transactions, from underwriting to claims, and will be a lucrative source of income for the DeFi industry.
DeFi Addressable Market Size
Transaction size. The Ethereum network processes over 1.3 million transactions every day in 2021, including remittances, trade, lending, loans, and various other types of transactions. That’s a small number compared to over 1 billion daily global credit card transactions and a daily trading volume of around 5.5 billion on the Nasdaq. The presence of 1% of credit card transactions in the Ethereum chain is at least 8 times the current size.
Income from the protocol. Annual revenue from all DeFi protocols is estimated at $ 5 billion. This, in turn, accounts for a fraction of the $ 2.3 trillion in global banking revenues. $ 2 trillion in international cross-border payment revenues and $ 35 billion in global stock market revenues. The TradFi industry is so profitable that gaining a 1% market share would mean a 10x increase in DeFi revenues.
The crypto crash is accelerating the DeFi trend. While countries like China continue to struggle with cryptocurrencies, they will only accelerate the use of DeFi. The active Ethereum wallet and MetaMask browser extension increased 10x in August 2021 to 10 million. While this appears to be a large number, it represents a penetration rate of only 5% among the 221 million global cryptocurrency users. This shows that public crypto users accustomed to hassle-free centralized services like Robinhood represent a huge untapped market for DeFi that can be embraced by UI / UX improvements.
