DeFi has exploded by 800 percent but has a long way to go mainstream

TL;DR Breakdown

  • Decentralized finance is the investment and trading of assets in a distributed environment without a central entity
  • Defi metrics include, On-chain cryptocurrency value received, On-chain retail value transferred, and Peer-to-peer (P2P) exchange trade volume

What is DeFi?

Decentralized Finance is a form of Finance that relies on blockchain forms or distributed systems and does not involve financial intermediaries. DeFi involves the trading and investment of digital assets. Since the rise of the cryptocurrency markets, DeFi has attempted to go mainstream in the finance sector. It has been to no avail, but the fruits were not wholly futile. More investors have embraced the digital way of trading. 

DeFi adoption

In an attempt to measure the adoption of Decentralized Finance, the Global DeFi Adoption Index has compiled statistics that show an 880% increase in the usage of DeFi. Instead of using the volume of transactions and the number of assets being exchanged, the Global DeFi Adoption Index uses non-professional and small-scale crypto traders. They also consider ordinary activities like making payments and savings, not just trading, exchanges, and making speculations. By doing this, they not only focus on big economies and markets which have the upper hand in cryptocurrency. 

Decentralized finance
Cryptocurrencies share size per platform by Chainalysis.com

The metrics used in measuring DeFi adoption are pretty diverse and involving. These include; On-chain cryptocurrency value received, On-chain retail value transferred, and Peer-to-peer (P2P) exchange trade volume. On-chain cryptocurrency value received consists of measuring the amount of cryptocurrency activity concerning the wealth of individual residents of the country. The on-chain retail value transferred is done by comparing cryptocurrency activity done by retail transactions (which are assumed to be worth below $10000) to the wealth of individual residents of the country. 

Peer-to-peer exchange trade volume involves the measure of cryptocurrency exchanged from individual to individual. This takes into consideration the number of internet users. The wealth of individuals in a country is determined by Purchasing Power Parity (PPP) per capita. 

When these metrics are used, both developed and emerging markets are considered. Comparing both, there is a spike in DeFi adoption in emerging markets. According to Chainalysis, out of 154 countries, Vietnam, India, Kenya, Ukraine, and Pakistan took the top 5 positions in terms of DeFi adoption. The main explanation of these emerging markets is that they limit traders on the amount of money they can move in and out of the country. Cryptocurrency gives them a limitless chance to move finances for their needs which have encouraged many investors to join in!

DeFi going mainstream

Whether DeFi becomes such a distinct phenomenon in the financial sector, it is still away from becoming mainstream. According to DeFi Llama, there is an increase in the total value locked in DeFi from $5b to $182.21b today.  However, this does not take into consideration the individual crypto traders who are mainly small-scale. Some have not embraced it as others, like various retail traders, term it as sophisticated. 

Apart from this, there have not been significant steps towards metaverse ETFs.  Many investors have stood up for the idea, and investments are beginning to rise in the metaverse. However, it looks like an affair of the upper social class because it is yet to be adopted and accepted by small non-professional traders. 

By comparing how far we have gone into the cryptocurrency trade and how close we are to making it mainstream financial markets. With some developed markets becoming reluctant on the cryptomarket with issues like the China crypto crackdown, it will take a while to become mainstream.

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