Decentralized finance markets have reached their highest ever levels in terms of the total amount of crypto collateral locked in smart contracts across the nascent ecosystem.
DeFi: The Quickest Growing Sector in Crypto
The recent liquidity farming craze has catalyzed DeFi markets so much that they have now become the quickest growing sector in the crypto industry. Total value locked (TVL), which is a measure of how much crypto collateral is locked up in smart contracts, has just hit an all-time high of $1.75 billion, according to Defipulse.com.
So far this year, DeFi markets have grown by over 150% in terms of dollar equivalent TVL. By comparison, cryptocurrency market capitalization has only managed an increase of 37% over the same period.
Ethereum is the foundation of decentralized finance since protocols as DApps, and smart contracts are all based on the network. The amount of ETH locked into DeFi protocols currently stands at 3.1 million, which is equivalent to 2.8% of the total supply.
Bitcoin is also being used in DeFi markets, and the amount of BTC locked up has skyrocketed over the past month. From around 2,000 BTC in May, the amount of Bitcoin invested in DeFi protocols has jumped almost 400% to just below 10k today.
This collateral has been tokenized onto the Ethereum network in the form of wrapped Bitcoin (wBTC) and a number of other formats that make it ERC-20 compatible. Ultimately, this is bullish for Ethereum though current prices are not reflective of this sentiment and growth.
Liquidity Farming Driving Growth
This surge in progress and popularity is the direct result of liquidity farming, which is where speculators and investors supply liquidity to lending and borrowing platforms in exchange for bank-busting interest rates and a share of token distribution incentives.
Compound Finance was the first DeFi platform to popularize this trend when it started distributing COMP tokens in the middle of June. From a seed price of around $16, COMP surged to top out at around $325 before falling back to $175, where it currently trades according to Uniswap.info. The protocol distributes 2,880 tokens per day to users who have deposited crypto collateral or taken out a crypto loan.
Balancer followed suit a week or so later with its own token distribution, which saw BAL token prices surge from $0.16 to a peak of over $17 in just a day or two. Total value locked on the platform has surged 280% over the past couple of weeks as the yield farming frenzy gathers momentum.
Other DeFi platforms such as bZx, Curve, and Kyber Network are also working on their own governance-based tokenomics though all eyes are on the other big two platforms, Uniswap and Aave. DeFi is currently the hottest thing in the crypto industry, and it is only just beginning to gain traction. A new milestone of $2 billion locked up is likely to be hit this month if the current momentum continues.