What is DeFi potential?

Jul 29, 2020

With the value of funds locked in DeFi almost quadrupling in less than two months, the community is debating whether DeFi is in a bubble.

Data published by crypto market analytics firm Messari on July 29 indicates that the collective capitalization of the decentralized finance (DeFi) sector is equal to only 1.5% of the entire crypto capitalization.

According to Messari, the collective capitalization of every DeFi project put together is roughly $4.12 billion — less than that of the fifth-ranked crypto asset by market cap, Bitcoin Cash (BCH).

Watkins also noted that “literal meme coin” Dogecoin (DOGE) boasts a larger capitalization than every DeFi project with the exception of MakerDAO (MKR).

Despite the recent DeFi boom leading to claims the sector is overvalued, analyst Ryan Watkins believes the small size of the DeFi sector means it still has significant room to expand, arguing that it could benefit from a “reallocation” of capital from top 30 projects that are “useless first-gen cryptocurrencies, ghost town ‘ETH killers’, and dead projects.”

However ...

However, Messari’s data only looks at the capitalization of popular DeFi tokens, including the freshly launched Compound (COMP) and Balancer (BAL) tokens.

With only a meagre percentage of total token supply currently in circulation for both projects, and significant controversy surrounding the role of FTX’s derivatives in reportedly driving the recent price discovery of both tokens, some crypto analysts are skeptical of the immediate growth potential of DeFi tokens that have recently surged in price.

Funds locked in DeFi near $4B

The recent crypto rally that saw Bitcoin (BTC) push above $11,000 and Ethereum (ETH) exceed $300 for the first time in roughly 12 months hasn’t significantly dampened down enthusiasm for DeFi tokens.

Less than two months after breaking above $1 billion for the second time, the value of funds locked in DeFi currently stands at $3.7 billion, according to DeFi Pulse.

MakerDAO comprises the largest DeFi protocol with $1.03 billion of 28% of the sector’s capital locked within it, followed by Compound with $796 million or 21.5%, and Synthetix (SNX) with $483 million or 13%.

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