Meanwhile, CoinGecko calculates a total market capitalization of $128 billion for decentralized finance (DeFi), the corner of the cryptocurrency industry that represents a wide range of lending, trading and betting activities carried out almost entirely on blockchain networks using tokens as proceeds and collateral. The top five tokens on CoinGecko's list are UNI, LINK, LUNA, AAVE and CAKE.
The following chart is from a CoinGecko page that tracks the combined market cap of all DeFi tokens:
Coinbase, it should be noted, listed DeFi as a potential competitor when it filed for a public listing, but for whatever reason, market caps aren't how we usually talk about the DeFi market. We usually talk about the value of assets people have deposited in DeFi apps to earn yield.
But that measure gives a similar reading: There is now more than $100 billion worth of assets locked up in DeFi.
These get to be very large numbers, numbers that are worth reviewing to illuminate a story that somehow continues to be missed even as cryptocurrency has started going mainstream.
DeFi on BSC has grown much faster than on Ethereum; it first hit $1 billion in TVL only at the end of January.
DeFi vs. ICOs
Here's a chart that compares funds entrusted to Ethereum's many DeFi smart contracts in the last year or so to funds that went to founders in initial coin offerings during the 2017-2018 boom (an updated version of one published here):
While the 2020 surge was known as "DeFi Summer," it's already evident the market is much bigger now.
1 million users? Maybe 2 million?
This shows there are at least 2 million wallets that have interacted with DeFi protocols. So that probably means something like more than a million individuals, maybe even close to two? It's very hard to say, but it is also worth noting that sometimes individuals participate in DeFi via third parties. So while some users hold many wallets, it's also true that some wallets represent many users.
Whatever the real count of users, the amount of money changing hands shows these applications are real businesses. The site Crypto Fees has been tracking usage fees charged on different DeFi applications. The top DeFi applications it lists (Uniswap, SushiSwap and Compound) show a seven-day average of daily fees collected ranging from $1 million to $4 million.
If there's one kind of finance that everyone understands, it is lending. The blockchain software company ConsenSys just released a first-quarter report on DeFi on Ethereum, showing a growing market for loans:
DeFi represents a much more credible narrative with more substantive businesses because it shows products with genuine returns and provides a way for people to earn impressive yields on deposits rather than making wild bets and hoping.
Wild bets are the best way to describe much (though certainly not all) of the investing that took place in the initial coin offering boom of 2017 to 2018. That boom drove the prior bull run, and the public appeared capable of making that connection.
Four years later, the cryptocurrency industry is in a bull run again, but the public appears incapable of connecting it to these billion-dollar deposits into this new iteration on finance. For whatever reason, the main topics are, again, bitcoin's price and, somehow, non-fungible tokens and dogecoin.