{"id":8121,"date":"2020-02-12T00:19:22","date_gmt":"2020-02-11T22:19:22","guid":{"rendered":"https:\/\/forklog.media\/?p=8121"},"modified":"2020-02-13T00:01:02","modified_gmt":"2020-02-12T22:01:02","slug":"defi-passed-1b-total-value-locked-grain-of-salt","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/defi-passed-1b-total-value-locked-grain-of-salt\/","title":{"rendered":"DeFi Passed $1B Total Value Locked: Grain of Salt"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">According to DeFi Pulse, last week, the total dollar worth of funds locked in Ethereum-powered DeFi projects <\/span><a href=\"https:\/\/defipulse.com\/\"><span style=\"font-weight: 400;\">passed<\/span><\/a><span style=\"font-weight: 400;\"> the $1 billion mark. Currently, the Total Value Locked metric is $1.04 billion.<\/span><\/p>\n<p><!--more--><\/p>\n<blockquote><p><b><i>\u201c$1 Billion marks an important milestone for DeFi to be celebrated,\u201d <\/i><\/b><i><span style=\"font-weight: 400;\">DeFi Pulse website cheers.<\/span><\/i><\/p><\/blockquote>\n<p><span style=\"font-weight: 400;\">The news of this milestone for DeFi resonated with an optimistic part of the crypto-community. While the $1B mark is rather a good sign for the nascent economic sector, there are things to consider before making conclusions.<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">What Happened?<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">On Friday, February 7th, DeFi Pulse estimated the total dollar value of the assets held in Ethereum smart contracts of DeFi projects to be over $1 billion.\u00a0<\/span><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-8127\" src=\"https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi.png\" alt=\"DeFi Passed $1B Total Value Locked: Grain of Salt\" width=\"720\" height=\"353\" srcset=\"https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi.png 864w, https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi-300x147.png 300w, https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi-768x377.png 768w, https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi-470x231.png 470w\" sizes=\"auto, (max-width: 720px) 100vw, 720px\" \/><\/a><\/p>\n<p><span style=\"font-size: 10pt;\"><i><span style=\"font-weight: 400;\">Total Value Locked in DeFi calculated in USD, 30-day chart. Source: <\/span><\/i><a href=\"https:\/\/defipulse.com\/\"><i><span style=\"font-weight: 400;\">DeFi Pulse<\/span><\/i><\/a><\/span><\/p>\n<p><span style=\"font-weight: 400;\">This number represents the assets like Ether or Dai people have locked in for different purposes: lending, swaps, hedging, etc. What is important, it doesn\u2019t directly represent revenues or investment related to DeFi projects.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">According to the researchers\u2019 website, the metric called Total Value Locked (TVL) is calculated from the total balances of ETH and ERC-20 tokens held by the projects\u2019 smart contracts. The total dollar worth is calculated by multiplying said balances by the dollar prices of the respective assets.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Since the beginning of 2020, the TVL metric was showing somewhat more active growth, then seen previously in 2019.<\/span><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi_90day.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-8126\" src=\"https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi_90day.png\" alt=\"DeFi Passed $1B Total Value Locked: Grain of Salt\" width=\"720\" height=\"361\" srcset=\"https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi_90day.png 716w, https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi_90day-300x150.png 300w, https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi_90day-470x236.png 470w\" sizes=\"auto, (max-width: 720px) 100vw, 720px\" \/><\/a><\/p>\n<p><span style=\"font-size: 10pt;\"><i><span style=\"font-weight: 400;\">Total Value Locked in DeFi calculated in USD, 90-day chart. Source: <\/span><\/i><a href=\"https:\/\/defipulse.com\/\"><i><span style=\"font-weight: 400;\">DeFi Pulse<\/span><\/i><\/a><\/span><\/p>\n<p><span style=\"font-weight: 400;\">CoinDesk\u2019s on-point article on the matter <\/span><a href=\"https:\/\/www.coindesk.com\/why-defis-billion-dollar-milestone-matters\"><span style=\"font-weight: 400;\">relayed<\/span><\/a><span style=\"font-weight: 400;\"> the positive feedback they received MakerDAO\u2019s creator Rune Christensen:<\/span><\/p>\n<blockquote><p><b><i>&#8220;It proves that people around the world want access to more efficient, less biased, money.\u201d<\/i><\/b><\/p><\/blockquote>\n<p><span style=\"font-weight: 400;\">They\u2019ve also received a positive-tone note from Spencer Noon of DTC Capital:<\/span><\/p>\n<blockquote><p><b><i>&#8220;No other smart contract platform comes close in terms of its developer mindshare, tooling, and infrastructure, to the point where I don\u2019t believe DeFi could exist anywhere else today. And perhaps most surprisingly, we\u2019re finally seeing a credible case for ETH to accrue a long-term monetary premium as the only truly trustless collateral type in decentralized finance.&#8221;<\/i><\/b><\/p><\/blockquote>\n<p><span style=\"font-weight: 400;\">The Twitter users are also glad to hear the news about $1 billion, as it seems from the <\/span><a href=\"https:\/\/twitter.com\/hashtag\/DeFi\"><span style=\"font-weight: 400;\">#DeFi<\/span><\/a><span style=\"font-weight: 400;\"> hashtag feed.<\/span><\/p>\n<blockquote class=\"twitter-tweet\" data-width=\"500\" data-dnt=\"true\">\n<p lang=\"en\" dir=\"ltr\">Total Value Locked in <a href=\"https:\/\/twitter.com\/hashtag\/DeFi?src=hash&amp;ref_src=twsrc%5Etfw\">#DeFi<\/a> : $1.01B \ud83d\ude80<br \/>We&#39;ve made history \ud83d\ude0e\ud83c\udf89 <a href=\"https:\/\/t.co\/vrYl4kjqEx\">pic.twitter.com\/vrYl4kjqEx<\/a><\/p>\n<p>&mdash; Julien B. (@bneiluj) <a href=\"https:\/\/twitter.com\/bneiluj\/status\/1225747332790202369?ref_src=twsrc%5Etfw\">February 7, 2020<\/a><\/p><\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p><span style=\"font-weight: 400;\">Yet, there is a set of additional circumstances to keep in mind when figuring out what it all means for the DeFi sector, Ethereum, and the crypto-industry.<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">What\u2019s the Catch?<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">First and foremost, as it\u2019s already been noted, the $1B total value locked number is heavily influenced by the Ether price involved in the calculations.<\/span><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi_ETH_90day.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-8125\" src=\"https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi_ETH_90day.png\" alt=\"DeFi Passed $1B Total Value Locked: Grain of Salt\" width=\"720\" height=\"362\" srcset=\"https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi_ETH_90day.png 719w, https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi_ETH_90day-300x151.png 300w, https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/TVL_DeFi_ETH_90day-470x236.png 470w\" sizes=\"auto, (max-width: 720px) 100vw, 720px\" \/><\/a><\/p>\n<p><span style=\"font-size: 10pt;\"><i><span style=\"font-weight: 400;\">Ether locked in DeFi, 90-day chart. Source: <\/span><\/i><\/span><a href=\"https:\/\/defipulse.com\/\"><i><span style=\"font-weight: 400;\"><span style=\"font-size: 10pt;\">DeFi Pulse<\/span><\/span><\/i><\/a><\/p>\n<p><span style=\"font-weight: 400;\">Currently, there are about 3.1 million ETH locked in that are involved in the TVL calculation. The price of Ether is $232.4. Therefore the ETH contribution to the dollar TVL is around $720.44 million or a bit over 72%.\u00a0<\/span><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/ETH_Price_CMC.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-8124 size-full\" src=\"https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/ETH_Price_CMC.png\" alt=\"DeFi Passed $1B Total Value Locked: Grain of Salt\" width=\"1025\" height=\"446\" srcset=\"https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/ETH_Price_CMC.png 1025w, https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/ETH_Price_CMC-300x131.png 300w, https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/ETH_Price_CMC-768x334.png 768w, https:\/\/forklog.com\/en\/wp-content\/uploads\/2020\/02\/ETH_Price_CMC-470x205.png 470w\" sizes=\"auto, (max-width: 1025px) 100vw, 1025px\" \/><\/a><\/p>\n<p><span style=\"font-size: 10pt;\"><i><span style=\"font-weight: 400;\">Ether price in USD and BTC. Source: <\/span><\/i><a href=\"https:\/\/coinmarketcap.com\/currencies\/ethereum\/\"><i><span style=\"font-weight: 400;\">CoinMarketCap<\/span><\/i><\/a><\/span><\/p>\n<p><span style=\"font-weight: 400;\">Since TVL is this much dependent on Ether price, the recent rally of ETH price likely has to do with the milestone. Notably, the number of Ether locked decreased slightly since the peak of 3.198 million on January 30th.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This means that the $1 billion mark isn\u2019t entirely emblematic of mass adoption coming on the back of DeFi projects. Moreover, there are certain scenarios, where such a lopsided disposition may not be desirable.<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Mass Adoption or Bust<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">As the overwhelming majority of DeFi applications are powered by Ethereum, they share the technical risks with a network that may have issues with security and scalability. If Ethereum happens to be overloaded, processing times and transaction fees will get ugly. If it happens to be hacked, the DeFi sector will bear the consequences as well.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Another side of the issue is the price of Ether, which is predominantly used as collateral for loans with DeFi projects. In case of a sudden downturn in Ether price, a lot of users will find their loans uncollateralized and have to replenish the collateral balance. Some will not make it, therefore triggering margin calls. Smart contracts will try to automatically sell off the ETH in collateral, but if the drop is too steep, it won\u2019t be able to redeem the loan in full. This means that people on both sides of the loan will lose money.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Considering the volatility of Ether and the recent rally, in particular, hypothetical worst-case scenarios from both economical and technical points of view are at least unnerving.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In an exclusive commentary for forklog.media, Max Pertsovsky, the Head of Growth at <\/span><a href=\"https:\/\/wavesplatform.com\/\"><span style=\"font-weight: 400;\">Waves Platform<\/span><\/a><span style=\"font-weight: 400;\"> working with DeFi solutions, pointed out the important challenges the DeFi sector still has to overcome:\u00a0<\/span><\/p>\n<blockquote><p><b><i>\u201cDespite the major milestone reached, the adoption of DeFi currently lacks behind the promising theory. To fill the gap between theory and practice DeFi has yet to overcome its core issues: accessibility, capital inefficiency, unintuitive UX, hidden risks, regulation, and low liquidity. We are at an early development stage.\u201d<\/i><\/b><i><span style=\"font-weight: 400;\">\u00a0<\/span><\/i><\/p><\/blockquote>\n<p><span style=\"font-weight: 400;\">He also noted that for the big breakthrough in DeFi to happen, we need more in terms of large-scale cryptocurrencies adoption, but the DeFi companies themselves should pay more attention to the current needs of their users:<\/span><\/p>\n<blockquote><p><b><i>\u201cIn order for DeFi to really matter, not just for the tech-savvy elite, but for the other 99.9%, we need to see broader cryptocurrency adoption and product go-to-market strategies that meet mass consumers where they are today and not where we want them to be.\u201d\u00a0<\/i><\/b><\/p><\/blockquote>\n<p><span style=\"font-weight: 400;\">All in all, the $1 billion milestone is important as a representation of DeFi development, but also as a highlight of the sector\u2019s dependence on the technological infrastructure and market moods. The business side of DeFi is another thing to improve.<\/span><\/p>\n<blockquote><p><b><i>\u201cI believe DeFi will continue to create new hyper-efficient markets, but as long as these structural inefficiencies exist, DeFi will operate in parallel to traditional finance,\u201d <\/i><\/b><i><span style=\"font-weight: 400;\">Max Pertsovsky added.<\/span><\/i><\/p><\/blockquote>\n<p><span style=\"font-weight: 400;\">The DeFi sector and the crypto-industry have quite a way to walk. Milestones like the one in question add up and form the necessary credibility and trust to move on to bigger things. Even if the pretty round numbers are somewhat biased, the progress is obvious. Yet, it is important to keep the hype at bay and be considerate of the consequences that get bigger along with this new and hot sector.<\/span><\/p>\n<p><b>Follow us on\u00a0<\/b><a href=\"https:\/\/twitter.com\/forklogmedia\"><b>Twitter<\/b><\/a><b>\u00a0and\u00a0<\/b><a href=\"https:\/\/www.facebook.com\/forklogmedia\"><b>Facebook<\/b><\/a><b>\u00a0and join our\u00a0<\/b><a href=\"https:\/\/t.me\/forklogmedia\"><b>Telegram channel<\/b><\/a><b>\u00a0to know what\u2019s up with crypto and why it\u2019s important.<\/b><\/p>\n","protected":false},"excerpt":{"rendered":"<p>According to DeFi Pulse, last week, the total dollar worth of funds locked in Ethereum-powered DeFi projects passed the $1 billion mark. Currently, the Total Value Locked metric is $1.04 billion.<\/p>\n","protected":false},"author":6,"featured_media":8123,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"1","news_style_id":"","cryptorium_level":"","_short_excerpt_text":"","creation_source":"human_written","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[3],"tags":[140,1093,46],"class_list":["post-8121","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news-and-analysis","tag-adoption","tag-defi","tag-ethereum"],"aioseo_notices":[],"amp_enabled":true,"views":"593","promo_type":"1","layout_type":"","short_excerpt":"","is_update":"","_links":{"self":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/8121","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/comments?post=8121"}],"version-history":[{"count":3,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/8121\/revisions"}],"predecessor-version":[{"id":8130,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/8121\/revisions\/8130"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media\/8123"}],"wp:attachment":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media?parent=8121"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/categories?post=8121"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/tags?post=8121"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}