The Future of DeFi

The biggest question in DeFi is always: What’s next?

And that’s what’s so magnificent about this new world of DeFi: nobody knows, but whatever it is, it’s coming fast and furious.

Back up a moment to appreciate DeFi in 2020–the landmark year of Ethereum to date.

You can ponder regrets having not bought ETH for as little as $85 during the pandemic induced market crashes in March, long before the most recent price movements to $1900+ in 2021.

But more importantly, we saw real, meaningful activity and adoption in literally every metric across DeFi.

The crypto analytics newsletter, Our Network, estimates 500k active addresses and 1M users were participating in DeFi at the end of 2020.

Total Value Locked (TVL) — the almighty meme of memes in DeFi, showed about a 28X increase from ~700 million on January 1st 2020 to just over $14 billion a year later.

In 2020, tokenized bitcoins grew an astounding 140X from about 1100 tokenized bitcoins to over 140k tokenized bitcoins on Ethereum, worth today about $4.4 billion.

Stablecoins on Ethereum ballooned to about $20B–enough so that US regulators and Congress representatives proposed a bill to regulate stablecoins.

So what can we expect in 2021?

Based on what we know is already in progress and being worked on, the future of DeFi might look like this:

With the transition to Proof of Stake on Ethereum and continued advancement of Layer 2 solutions, we should see Ethereum DeFi network fees dramatically drop to fractions of a penny per transaction, while transaction throughput increases to the point you can confirm transactions within a few hundred milliseconds–the length of time required to click a button on screen.

Liquidity will continue to grow on AMMs and DEXs to the point you can trade hundreds of millions, and eventually billions of dollars in a single transaction with near 0 slippage.

Total Value Locked (TVL) across all of DeFi will grow to easily eclipse the market cap of Bitcoin, given that DeFi on Ethereum will likely hold more than 50% of circulating Bitcoin supply in the form of tokenized BTC like renBTC or sBTC. If BTC keeps going up in value, no Bitcoin hodler will want to skip the opportunity to passively earn with their BTC, especially when it doesn’t require any KYC or signup.

DeFi like Synthetix will someday allow you to trade whatever you want–forex markets, commodities like gold or oil, GOOG (Google) stock, the S&P500 index, Tesla stock, you name it. Derivatives trading in DeFi on Ethereum will be a multi-trillion dollar market, and not only will we witness these sorts of numbers, but this trading will eclipse the volumes traded in tradfi.

The biggest artists, musicians, and athletes in the world will begin issuing personal tokens. They’ll better connect with their fanbase by rewarding them with tokens that represent their influence. Kanye West will have a Yeezy token. The next Michael Jordan will have an AIR token.

DeFi will eventually erode some of the most sacred institutions of finance, such as the home mortgage. Once DeFi establishes reliable undercollateralized lending, nobody will want to manually email all their personal information with a dozen middlemen involved, each charging a fee, when home buyers could instead get instantly approved for the money they need to purchase a home on Aave or Compound.

We as humans are terribly flawed at estimating the exponential changes that will come from technology. This is yet another example that we will likely all look back upon to say “I never fully understood all that was coming.” And so all we can do is stay patient, never stop learning, try everything new, and above all else, enjoy the ride that is DeFi! The internet of money is here so you best not bet against it.