DeFi protocols are zooming and how. The total value of capital locked in DeFi protocols has increased by a massive 217% in less than 2 months overtaking the $7 billion figure for the first time. 2020 has been a great year for DeFi so far with minor hitches, but the average rate of growth is steadily growing. If the growth rate continues to spring up in the same manner, by the end of this year, DeFi will be worth more than $27 billion!
An analysis of the growth
At present Aave has the largest DeFi with $1.51 billion locked in it. It is followed by MakerDAO with $1.42 billion on the number 2 spot, Curve Finance at spot 3 with $1.15 billion, and yEarn Finance with $845 million. Aave acquired its numero uno spot after it received an Electronic Money institution license from the UK Financial Conduct Authority giving indications of the sector’s increasing legitimacy. While the course of the growth has been traveled by new-age lending protocols shaking up Maker’s dominance, it is only 6 major protocols( Aave, yEarn, Curve Finance, Synthetix, Maker and Compound) that have captured the space with 90% capital locked up in the sector as per DeFi pulse. Many projects had been made inwards in the sector but very few could hit the bull’s eye with its vision and long-standing capability.
With the scheduled revamp of Aave, there is a likelihood that governance is put in the hands of the token holders alongside forming a perfect alignment between the native token’s value buildup. The LEND token has been migrated to AAVE with a reverse token split similar on the grounds of a reverse stock split. This has reduced the supply from 1.2 billion to 12 million. Additionally, 3 million new tokens will be generated in the form of reserves needed for the ecosystem thinning the existing investors by 25%.
Industry experts warn
An illuminating example of such stories has been Yam Finance that rose like a phoenix but crumbled down dramatically. The protocol collapsed with more than $750,00 worth of crypto lost alongside. DForce also suffered a major multi-million dollar hack in April exposing its vulnerability despite the hacker returning all of the amounts back to the investors. Industry leaders have been warning and have asked the investors to show some refrain. Compound founder Robert Leshner in his recent tweet said:
“If spaghetti.money has $500 million less than 36 hours after launch, the industry needs to self-regulate and stop launching these meme farming games”
Vitalik Buterin, the co-creator of Ethereum believes that merely being swayed away with tall claims such as the next hot defi project is not enough. It is important to understand the dynamics and what goes into the making. If one can truly understand and differentiate the right one from the wrong, only then people should put in good investments else they should stick to micro amounts minimizing risks.