Another crypto sector has a rocket under it, but this time it’s not Bitcoin and, according to experts, has actual revenue attached.
Decentralised finance, or defi in the crypto lingo, is an almost $US1bn ($1.5bn) industry; it cracked the billion mark when markets generally were peaking in February.
It’s an example of how crypto assets are continuing to mature into investable products that are attractive to more than just the sector’s evangelists, says Apollo Capital chief investment officer Henrik Andersson.
“We believe it’s an attractive area for investors because of the ability to do simple cash flow analysis such as net profit valuation or price to earnings.”
Since the great crypto crash of late 2017 when Bitcoin fell from almost $US20,000 to just over $US3000 by the end of the year, investors exposed to the hype then have been highly cynical about new moves around cryptocurrencies.
Yet institutional investors have been moving slowly ahead with plans for entry.
Andersson says where institutional custodial and insurance products herald crypto’s acceptance by the biggest end of town as a real investment, entities that produce actual revenue and profits (or losses) are a further step-change.
Decentralised finance is a digital take on financial products, based mainly, but not entirely, on the Ethereum platform.
Ethereum is a Blockchain-based platform that allows people and companies to build products that use “smart contracts” to cut out middlemen and create peer-to-peer systems uncontrolled by a central authority.
“This technology is mostly suitable for financial contracts. It’s very powerful when you apply it to finance and I think this might be the main use case of blockchain technology because financial contracts are well defined,” Andersson said.
It comes with new concepts that investors and adherents are using to give an idea of value.
‘Locked value’ is one, which measures the amount of currency, be it dollars, Bitcoin or another cryptocurrency, currently held in smart contracts on a particular platform. The higher the value of money held, the better the platform is doing, adherents say.
Total locked value (TLV) in the decentralised finance sector topped $US1.2bn in February, up from nothing in late 2017. It has since come back to $US965m after the crash in March.
About half of these assets belong to Maker, a platform which offers credit. It has ‘locked up’ $US509m, 2.2 million Ether, and 54,200 Bitcoin, according to Defi Pulse, a website that tracks in almost-real time total TLV levels.
Maker is forecast to make $111,082 this year, and has a price to earnings ratio (P/E) of 5,545.85, according to decentralised finance earnings tracker Token Terminal.
Decentralised exchanges are another section of the…