The Decentralized finance (DeFi) movement finally exploded in 2020 and grew instantly.
Most DeFi applications are on the Ethereum blockchain. Both Defi and Ether have been doing exceptionally well this year. Recently, the native Ethereum token reached its all-time high.
Some community members think this pump is the result of a bubble. However, there are many reasons to believe this is not the case.
Decentralized finance was a breath of fresh air to the crypto space. It brought countless new tokens that have revolutionized decentralized lending and borrowing services.
The short-lived Yam Finance quickly became one of the fastest-growing platforms in the DeFi space.
Uniswap even revitalized the concept of decentralized exchanges utilizing an automated market maker model. It allows the system price trades without depending on liquidity from a counterparty.
Ethereum is a big theme in Defi.
Decentralized finance’s trustless ecosystem has brought greater effectiveness and more automation opportunities. However, it’s still complicated.
Rune Christensen, a founder of the DeFi platform MakerDAO, believes that there is still very much work. He added that yield farming is not sustainable. Still, it is helping to bootstrap the industry in the short term and attract developers. Once the markets cool down, DeFi will have to integrate with traditional finance and tokenize real-world assets to be used in DeFi protocols on-chain.
Christensen also mentioned that the industry is entirely reliant on the Etherum platform. Even though it depends on composability between current DeFi applications and Eth as a primary security source, there may be other problems hindering DeFi’s growth.
Many members of the community share this sentiment.
For Illia Polosukhin, CEO of Near Protocol, a blockchain that allows the creation of decentralized applications and is interoperable with Ethereum, DeFi might keep growing on Ethereum.
Most of the applications work with limitations. They would only be slightly successful on other chains. Moreover, it is not just the apps but the whole ecosystem of users, assets, integrations, and other applications, Polosukhin said.
Other issues hindering Decentralized finance’s growth include the launch of Eth2. It has the potential to have effects on decentralized finance. Kevin Davis, a chief technology officer of the Kava DeFi platform, believes that it will take few years for Eth 2.0 to become a significant player in the DeFi space. The biggest obstacle is the lack of experienced developers and mature developer ecosystems, he says.