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Ethereum DeFi May be Exciting But the “Mania Will End”: Research Firm

Nick Chong

Nick Chong | Jun 25, 2020 | 10:00

Ethereum defi Ethereum

Ethereum DeFi May be Exciting But the “Mania Will End”: Research Firm

Nick Chong

Nick Chong | Jun 25, 2020 | 10:00


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If you’ve been following crypto over the past week, you likely have heard it all about Ethereum and DeFi.

The use of these two words in the industry has become incessant as market trends have shifted in favor of the two.

Tahar Zafar, a cryptocurrency analyst, shared the below table illustrating these trends perfectly. It shows that as of June 18th, Ethereum-based tokens such as Aave’s LEND, Kyber Network’s KNC, and Bancor’s BNT, were outpacing Bitcoin.

Bitcoin vs. DeFi-focused tokens over the past 90 days. Data current as of Jun. 18.

Bitcoin vs. DeFi-focused tokens over the past 90 days. Data current as of Jun. 18. Image from Taha Zafar

Even Ethereum, which most often moves directly in tandem with BTC, has been slightly outperforming the market leader.

Yet a crypto research firm says that Ethereum DeFi will eventually see a correction and return to more reasonable levels.

Ethereum DeFi Will Eventually Return to Earth

DeFi-related tokens have shot higher by dozens and hundreds of percent over recent months as outlined above. This has coincided with an exponential increase in the economic firepower of the DeFi ecosystem.

DeFiPulse reports that the value of cryptocurrency locked in DeFi applications has reached $1.6 billion. This is three times that was seen in March and more than 60% higher than this metric was 10 days ago.

According to Weiss Crypto, DeFi may be exciting but it may soon see a correction to normality:

“DeFi is one of the most exciting things going on in crypto right now, but the idea that this sector will decouple from the rest of the market is ludicrous. Eventually, the mania will end, and DeFi will trade in line with the rest of the market.”

DeFi Is Facing Down a Number of Roadblocks

Supporting Weiss Crypto’s expectations of a market correction is the roadblocks DeFi is facing down.

Despite moves to increase the gas each Ethereum block can have, transaction fees are still relatively high.  It can cost dozens of dollars to send a DeFi transaction, some on Twitter have said over recent days.

These high fees prevent smaller holders from participating in many parts of the Ethereum ecosystem. This should depress the rate at which DeFi tokens can rally.

Also, DeFi is subject to medium-term “latency” issues, according to Kyle Samani of Multicoin Capital.

Per previous reports from Bitcoinist, Samani explained that DeFi is unlikely to succeed with Ethereum in its current state:

“You just can’t build global scale trading systems for lots of users on POW chains. It just doesn’t work. High latency –> all kinds of negative second order effects. So I think for now we are near a plateau for DeFi – measured in ETH terms (not USD) – until the core latency problems are solved.”

This was in reference to the blockchain’s relatively long block times compared to the light-speed nature of the Internet. He’s saying that you can’t build full-scale financial applications when it takes ~13-14 seconds for any exchange of information/value to take place.

Featured Image from Shutterstock
Price tags: ethusd, ethbtc
Charts from TradingView.com 
Ethereum DeFi May be Exciting But the "Mania Will End": Research Firm

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