The past year has been a crazy journey for the blockchain industry. Between the devastating impact of the COVID-19 pandemic in various sectors and the Bitcoin marathon, this year has been a wonderful year for some and a disastrous one for many.
Today, a decentralized economy is at the heart of blockchain adoption. From the rise of massive decentralized exchanges to the huge demand for liquidity transactions, DeFi has not only accumulated a lot of dust, but has contributed billions of dollars to the blockchain.
On June 15, the DeFi Compound platform began distributing the COMP code to users, transferring control of the protocol to the people. More than $ 1 billion worth of Wrapped Bitcoin (WBTC) had been sold by August 15, allowing even Bitcoin owners to access the Ethereum-based DeFi world of applications.
Now some DEXs are competing with central exchanges, and the term “vampire mining” will always remind us of blockchain, not stupid vampires with axes and protective helmets. But while DeFi lit fireworks last year, it was Bitcoin (BTC) that made everyone stop and watch. Its unique growth of almost 40 thousand dollars makes it one of the most profitable and fastest growing assets in history.
But was DeFi partially responsible for this? The early stages of Bitcoin’s growth were negatively associated with DeFi, and many speculated that this was the result of the transfer of money from DeFi platforms to Bitcoin. The total value of digital assets reserved in smart contracts has grown hundreds of times over the past two years. However, most of this growth has occurred in recent months, and this is more due to an increase in assets already invested than to an increase in new investment.
Just as many argue that DeFi has had a big impact on BTC technology and blockchain, Bitcoin is also impacting DeFi. Blockchain may be an exciting new economic technology for the next decade, but Bitcoin is brand value. This is just part of the equation, but does it really matter?
Duel or duet?
As the total trading volume on the DEX has increased significantly over the past year, some have linked the recent rise in Bitcoin to the increased use of DeFi platforms. According to Robert Leschner, CEO of Compound, “Bitcoin fell to $ 40,000 in tandem with the rise in WBTC activity.” Compound Protocol is also the main owner of WBTC, with over $ 1.2 billion in BTC as collateral for fixed loans in coins and other assets.
One of the most commonly referenced DeFi room accounts is Total Locked Value, or TVL. It represents the value of digital assets stored on DeFi smart contract platforms and has grown from a few hundred million a few years ago to over $ 26 billion today. This is primarily due to the recent increase in the value of large market value investments such as Bitcoin and Ether (ETH).
According to Scott Stewart, co-founder and product manager of developer Kava Labs, the rise in the value of bitcoin is an incredibly positive sign for the DeFi space: “DeFi requires a lot of security to use in products. The higher the bitcoin value, the higher the security and therefore the more use of DeFi. ”
There has been a lot of hype and misinformation in blockchain circles about the TVL account. While this is not the most accurate picture of the cost of DeFi networks at present, it does highlight how much people are willing to take risks. While regulatory requirements like customer identification may sooner or later threaten the collapse of most major DeFi applications, they seem to be on the rise.
However, not everyone sees regulation as a threat. “This is a losing battle for regulators,” Stewart said, adding, “Even if you do manage to break one product or platform, it will most likely appear elsewhere – it’s open source software.”
This can be compared to a disorganized peer-to-peer file transfer on the Internet. Tough parents create bad kids. However, the results of the KYC DeFi limitation could also lead to more compatible apps. While this may be a limiting factor, decentralized finance cannot grow sustainably outside the legal framework. Bitcoin regulation is really tricky, and DeFi will inevitably complicate matters. So the connection looks much clearer here.
Old ideas, new energy
Last year, DeFi also pushed Ethereum to become the most used blockchain, resulting in higher aggregate transaction fees, even with Bitcoin. This is often a clear sign of the network’s ability to generate more revenue, and the updated Ethereum 2.0 promises better performance and cheaper transactions.