The decentralized finance sector has been steadily growing and has begun to see the fruits of its labor. But while there is much hype surrounding DeFi projects and applications, particularly during Bitcoin’s (BTC) uncharacteristic lack of volatility, there is still a long way to go.
The technology is still in its early stages, yet even as issues of usability, scalability, interoperability and lack of regulatory clarity continue to exasperate the space, the promise of DeFi is undeniable, and its value is impossible to ignore.
DeFi’s unstoppable growth in 2020
Thus far, 2020 hasn’t been the best of years for many, but DeFi has certainly come into its own by expanding exponentially. It passed a key milestone in February when the cumulative value of tokens locked in DeFi applications reached more than $1 billion. Despite some decline from a sell-off in March that spilled into all markets, that number already recovered by June. Today, it stands at $2.52 billion.
Among some of the main protocols to drive this growth is decentralized oracle network Chainlink, whose token has exploded by over 1,000% this year. Lending protocols have also been seeing some of the most traction, with Compound accounting for 28% of the total locked value and MakerDAO following not far behind. The new phenomenon of “yield farming” has presented investors and crypto traders with opportunities to make gains.
Yield farming, otherwise known as liquidity mining, is an important incentive mechanism that DeFi protocols use to attract liquidity. They do this by issuing governance tokens, such as Compound’s coin, COMP, that give governance rights to the holders who bring much-needed liquidity to the network.
All this action has placed DeFi tokens among the best-performing crypto assets of this year. In addition to COMP’s staggering growth after entering the market and the unstoppable rise of Chainlink’s LINK, over the last 90 days, other DeFi tokens like Aave (LEND) and Bancor (BNT) have seen gains of well over 300%.
No smart money can ignore stellar growth like this in the DeFi space, which is still largely dominated by retail investors. However, it has been gaining some serious traction among institutional investors — despite the infrastructure not being quite ready just yet. Let’s take a look at a few examples.
The rise of institutional interest in DeFi
According to a recent survey by Fidelity Asset Management, 80% of the surveyed institutions now find investing in digital assets appealing. That’s a sizable number and a gigantic shift compared to just a couple of years ago when many were brandishing Bitcoin and other cryptocurrencies as scams.
Yet beyond investing in well-known digital assets, some key traditional investment firms have redirected their interest toward DeFi to help the development of the space. The Chicago DeFi Alliance, for example, comprises some of the top trading, brokerage and investment firms. This initiative was created to support promising…