The Ethereum network is five years old. Although the project was first announced at the Bitcoin conference in North America in January 2014, its formation block wasn’t dismantled until July 30, 2015. Since then, Ethereum (ETH) has been the dominant digital currency in terms of market capitalization, popularity, and settlement. Network value after Bitcoin was overtaken in the latter.
Ethereum was built with myriad possibilities on the horizon that enable smart contracts, powerful tokens, complex decentralized applications, and decentralized fundraisers. The latter became hugely popular in 2017 as the first coin offerings hit the crypto space and brought in incredible profits for participants.
Could DeFi be the new ICO?
Ether has become the primary funding mechanism for ICO projects. With the projects and their base ERC-20 tokens said to have exited the ICO phase, speculation about their tokens has increased, as has the price of ether, which hit an all-time high of $ 1,412 on January 10, 2018. Though it’s far from it right now With this number, ETH hit a record high of almost $ 357 on August 1, 2020.
Although ICOs have helped take the crypto world to a new level, the hype was short-lived and the crypto market completely collapsed in early 2018. Shortly before, the US Securities and Exchange Commission announced that ICOs were considered security offers and began a campaign to protect investors.
Some now fear that as DeFi grows, Ethereum will take a similar path as it did in 2018. While government oversight has pushed for improvements to the cryptocurrency ecosystem, this can have devastating short-term consequences, such as: B. Loss of money to investors and lawsuits for project operators.
Is DeFi Really Driving Airwaves?
While price speculation seems to be widespread, it is common knowledge that the actual financial impact, decentralized funding, and liquidity are somewhat negligible. How much of that activity in Ether can actually be traced back to DeFi, as Ethereum recently became the largest blockchain in terms of stable value?
ConsenSys estimates that the DeFi protocols combined reached an all-time high of 3.3 million ethers trapped in protocols in the second quarter of 2020. Messari has suggested that the Ethereum blockchain could stabilize the Ethereum blockchain at around $ 2.5 billion a day. If you compare DeFi to the actual cryptocurrency market, it’s also easy to see that DeFi is still a drop in the bucket, smaller than the market capitalization of XRP and Bitcoin Cash (BCH) and only 1.5% of the total cryptocurrency market.
Is Ether facing the DeFi boom and depression cycle?
While funding rates for DeFi protocols pale in comparison to ICO-based funding campaigns of the 2017 era, it can be alarming to see a handful of DeFi tokens soaring thousands of percent in a short period of time. For example, the price of Aave (LEND) rose 7300% from $ 0.0046 to $ 0.344, and the price of Compound (COMP) quadrupled in the first week of trading in June. In fact, more than 10 other DeFi-related tokens rose more than 100% in 2020. While this is impressive, it still pales in comparison to the ROI that ICOs achieved in 2017.
While DeFi has achieved milestones such as $ 4 billion in closed-end funds, the volume of investment that DeFi’s protocols have made is much less than what the ICO raised. However, Ethereum co-founder Vitalik Buterin appears concerned that people may underestimate the risks associated with these protocols that hackers have exploited in the past.
The other bubble, while not perfect, can be an inevitable part of the current crypto innovation cycle. Projects and concepts are usually expanded disproportionately before more organic acceptance and investments arise. This is exactly what happened with ICO and its security token offerings Bitcoin and Altcoins. As the DeFi sector continues to grow rapidly, the biggest challenge could be in the form of future regulation, as has been the case with ICOs.
The future of Ethereum: stable coins, institutionalization, and scalability
While only time will tell if DeFi is in a bubble phase, there are certainly other reasons Ether has outperformed Bitcoin, such as the foundation for stable money transfers. According to the ETH gas station, Tether (USDT) is the largest gas provider in the network and continues to grow.