DeFi: Waiting For Adoption. Part 1

    18 Sep 2021

    Almost everyone at his point knows what “decentralized finance” is. However, generally speaking, the DeFi sector has not yet reached the mass adoption stage. In terms of attitude to it, the situation with DeFi now resembles the situation with cryptocurrencies at the very beginning of 2017.

    Bitcoin rising to $ 50,000 per token and Ether growing from $ 1800 to $ 3300 both pulled the DeFi market up with them. The profitability of services that allow you to open an interest-bearing deposit or give a loan in cryptocurrency has increased significantly. As a result, just over the past month, investors have replenished DeFi projects by about $ 60 billion. To be precise, in a little more than a month, the volume of funds invested in DeFi has gone up from $ 96 billion to $ 155.7 billion.

    This amounts to an average of $ 2 billion coming to the DeFi market every day for an entire month.

    Along with the general growth of the DeFi economy, the profitability on platforms where investors can open a deposit in cryptocurrency, take out a loan or lend crypto without intermediaries has increased exponentially. These are the services currently enjoying the height of popularity: according to Llama, a DeFi analytics platform, they get about 40% of all DeFi investments. The segment leaders are Aave and Compound protocols, which account for 15% of the total market. Their interest rates change automatically in real-time. Back in mid-July, you could invest the main stablecoins in the Aave project at only 1.5-2.5% annually on average, but it was already at 4-7% in mid-August. By the same point, the Compound platform, where the annual yield barely reached 2% in mid-July, had it at 3% (up to 6% for some stablecoins). Quite impressive, considering Compound is one of the more conservative platforms, and you rarely see high returns on it.

    All this seems rather nice, but DeFi is yet to approach mass adoption close to that of cryptocurrencies in general. It can be assessed by looking at the Global DeFi Adoption Index research published by Chainalysis analysts ( In it, the experts evaluated the worldwide spread of DeFi, using the same methodology they employed to estimate the level of mass crypto adoption.

    Looking at the market as a whole, we can see that the rise of DeFi has become one of the most positive cryptocurrency industry trends over the past 18 months. DeFi is a class of decentralized cryptocurrency platforms that can operate autonomously without the support of a central company, group, or individual. The most popular types of DeFi protocols are decentralized exchanges and lending platforms. But DeFi overall is one of the fastest-growing and most innovative sectors of the cryptocurrency economy.

    In order to estimate its real global prevalence, Chainalysis decided to create a new geographic index that ranks countries based specifically on the implementation of DeFi. Similar to their cryptocurrency adoption index, the DeFi adoption index is intended to highlight the places with the highest mass adoption of the technology by individual users, ignoring the companies that operate large funds. The research shows that while mass crypto adoption is usually highest in emerging markets, DeFi adoption is more commonplace in high-income nations where cryptocurrencies are already used extensively, especially by traders and institutional investors.

    The DeFi adoption index is formed from three component indicators. All 154 countries are ranked by each of these indicators, then each country’s average is taken to calculate the final number on a scale from 0 to 1. The closer the final figure is to 1, the higher the ranking. It allows each nation to be ranked according to overall DeFi activity, and at the same time, gives preference to countries where this amount is more significant, based on the average person’s well-being and the value of its money. The final score is estimated by evaluating the total amount of cryptocurrency received by the DeFi protocols from users in a given country and weighing the network value based on PPP per capita, a measure of a country’s wealth per capita. The higher the ratio of intra-chain value to PPP per capita, the higher the ranking. So, if two countries send equal amounts to DeFi protocols, then the country with lower PPP per capita will be ahead.

    The purpose of this estimate is to measure the DeFi activity of layman individual cryptocurrency users based on how many coins or tokens they have sent to DeFi protocols in retail-sized transactions (less than $ 10,000). It is also important to rank countries based on where the residents conduct the most DeFi-related transactions. Chainalysis measured this by taking the ratio of DeFi transactions to the total number of internet users in the country. The higher the percentage, the higher the ranking, which means that if the two countries had an equal number of deposits, the country with fewer Internet users would rank higher.

    The analysis showed that, unlike the crypto adoption index, many of the top-ranked grassroots DeFi adoption countries have large amounts of cryptocurrency transferable value, both now and in the past. These are usually countries with middle and high population income levels or countries with already developed cryptocurrency markets and, in particular, strong professional and institutional markets. Vivid examples here are the USA, China, Vietnam, Great Britain, and several Western European countries, which hold high positions in the DeFi Adoption Index.

    To be continued

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