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    Home » Editorials » If 2020 is The Year of DeFi, When Will Ethereum Benefit?

    If 2020 is The Year of DeFi, When Will Ethereum Benefit?

    Author: Martin Young

    Last Updated Aug 9, 2020 @ 12:27

    There is no doubt that the hottest thing in the crypto industry at the moment is decentralized finance. However, Ethereum as its foundation still hasn’t caught up.

    Another day has heralded another all-time high for the total dollar value of collateral locked up in DeFi markets. That milestone has just hit $2.15 billion as more investors lock up their crypto, according to Defipulse.com.

    The Year of Decentralized Finance (DeFi)

    In less than a month, the amount of collateral locked into smart contracts across the budding industry has doubled. Compound Finance is still the most dominant platform with a market share of 31% though others are racing to grab a slice of this digital pie with their own yield farming and staking incentives.

    There is no doubt that 2020 is the year for DeFi as 2017 was the year for ICOs, and 2018 the year for stablecoins. Business Director at Kraken, Dan Held, made the observation.

    Crypto narratives:

    2014 – Year of the alt coin
    2015 – Year of the smart contract platform
    2017 – Year of the ICO
    2018 – Year of the stable coin
    2019 – Year of the bank coin
    2020 – Year of DeFi

    Trends come and go, ₿itcoin doesn’t.

    — Dan Held (@danheld) July 8, 2020

    ADVERTISEMENT

    The comment was largely construed as Bitcoin maximalism by Shapeshift CEO and industry stalwart Eric Voorhees who replied:

    “You are listing crypto finance phenomena that are emerging and remaining, rather than flash in the pan trends.”

    When ETH Moon?

    If DeFi is just another crypto fad, then it is likely to be replaced with the next big thing in 2021. However, with current developments in the industry, and the evolution of its backbone, Ethereum, that is looking unlikely.

    DeFi tokens have been on fire recently with a number of them, including KNC, SNX, Ren, BNT, COMP, and BAL surging by triple digits over the past month. Many are beginning to wonder why Ethereum has remained so lethargic during this DeFi boom.

    ETH prices has moved a little over the past couple of days, lifting from their slumber by around 10% to just under $250 where heavy resistance lies. However, the long term picture has been flat with the asset wallowing around the same level as it was this time three years ago. DeFi has not benefitted Ethereum in terms of prices.

    The reason for this is scalability. Ethereum suffers under heavy load: as transactions skyrocket, so does the network fees. Costs to use the Ethereum network have been higher than those for Bitcoin over the past month. This makes the small operations in DeFi unsustainable at current gas rates.

    Only when layer 2 scaling is fully deployed, and the network can handle thousands of transactions per second instead of a paltry 15 will Ethereum start to move in terms of price. Phase 0 of ETH 2.0 needs to be deployed before the end of this year for that to happen. Until then, the asset is likely to remain in digital hibernation.

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    You Might Also Like:

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      Report: DeFi Was Bullish for Ethereum While Bitcoin's Volume Decreased In Q3-2020
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      Unraveling DeFi: An Interview With Synthetix About How Synths Work
    • 4 Things That Could Cause the DeFi Bubble to Pop
    Tags: DeFi Ethereum Ethereum 2.0
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    About The Author

    Martin J. Young
    More posts by this author

    Martin has been writing on cybersecurity and infotech for over two decades. He has previous trading experience and has been covering developments in the blockchain and cryptocurrency industry since 2017. Contact Martin: LinkedIn

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