By the end of September, the cryptocurrency markets had recovered from the so-called “September Curse” and had a market capitalization of $2.32 trillion. The decentralized financial market (DeFi) has become an integral part of this growth. According to Dappradar, the total closed value of DeFi Protocols (TVL) increased by more than 20%, from $113.5 billion on September 28 to $137 billion on October 6.
Even Bank of America (BoA) – the global banking giant – has expressed optimism about DeFi and non-financial tokens (NFT). In a report dated October 4 from BofA Securities, a subsidiary of BoA, the company estimated the volume of cryptocurrencies beyond “only bitcoin.”
(The power of Bitcoin) can implement automated applications (smart tokens like Ether, Cardano, Solana, etc. with blocks that can do more than just write payment contracts securely), such as paying after an event. It is Decentralized Finance (DeFi), where smart contracts automate the manual processes of the traditional economy, the report states.
He also compared coding with the early days of the internet and talked about the decentralization and tokenization of many aspects of finance as it stands.
Cointelegraph discussed the rapid expansion of the DeFi market with Johnny Q, CEO of cryptocurrency exchange KuCoin. It is to explain:
“The DeFi market is growing in popularity as more and more people begin to realize that smart contracts can be a convenient alternative to a traditional loan or bank deposit. The volume of funds held within DeFi reflects the market’s acceptance of private investors who are shifting their funds from the traditional financial system to the decentralized industry.”
Although TVL in the DeFi sector has seen a sharp rise in the price of its tokens for various projects, Kyu also attributes this increase to the attractive pricing offered by DeFi platforms.
A recent report from Dappradar showed that TVLs in the industry grew 53.45% in the third quarter of 2021 compared to the previous quarter. In September, the average number of unique wallets (UAWs) linked to a decentralized app was 1.7 million per day. The UAW quarterly average is 1.54 million.
Cointelegraph spoke with Fernando Martinelli, CEO of Balancer Labs, about the importance of the DeFi base in Ethereum. “The new wave of DeFi projects builds on the infrastructure built by the first generation, giving energy-hungry DeFi users new uses and better products,” he said.
Martinelli said that increased institutional involvement leads to more TVL in well-established “secure” protocols. In addition, the high returns offered by DeFi platforms move retail investors from centralized platforms to the DeFi space. This growing acceptance among different classes of investors is allowing DeFi to enter the next phase of its growth.
The DeFi ecosystem started with the Ethereum blockchain due to the proposed smart contract functionality. Since then, however, many other blockchain networks have distributed smart contract functionality on their networks using Layer 1 or Layer 2 solutions. The most famous of these networks are Binance Smart Chain, Solana, Avalanche, Terra, and Polygon. More recently, the Cardano Network has seen smart contract distribution as part of the Alonzo Steel Junction.
Although the growth of these networks can be considered organic, there is a major issue with the Ethereum blockchain that may have contributed to this growth: gas costs. The EIP-1559 proposal, which appeared as part of Hard Fork in London, involved burning ETH tokens in an effort to earn “ultrasound money” from ETH, improve scalability and lower gas taxes.
While the fees aren’t as ridiculous as they once were during the height of the bull run in May, there have been several instances in recent weeks where average transaction fees on the Ethereum network have gone up. In particular, on September 7, the fee was $21.29, and on September 27, the price of gas reached a four-month high of $25.43.
Martinelli said: “There is no doubt that the high gas fees on Ethereum – severe recently due to congestion due to NFT – have contributed to the rapid adoption of other networks. (..) Layer 2 solutions are helping the Ethereum scale, and we are very pleased to see the developments taking place in this area. “.
The continued popularity of NFTs is also an important factor in this growth. The aforementioned Dappradar report mentions that the NFT space is also showing exponential growth. In the third quarter, the market turnover exceeded $10.67 billion, up 704% from the second quarter and 38,060% over the same period last year.