Ethereum’s budding decentralized finance (DeFi) ecosystem took a heavy beating after the March capitulation crash.
As I detailed in an analysis for LongHash, what happened was that MakerDAO became unstable due to what some say is an erosion in trust in the protocol. Ethereum investor Parafi Capital wrote in a blog post:
“We believe this lack of stability and liquidity is translating into uncertainty around using DAI as a decentralized stablecoin in many DeFi protocols. Anecdotally, we have heard a handful of DeFi teams express frustration over DAI’s lack of liquidity/stability.”
Adding to this, a fledgling DeFi protocol with more than $25 million worth of crypto assets was hacked due to a glitch in a smart contract.
After this mess, one commentator went as far as to say that “the entire DeFi ecosystem almost died.”
But, as we now know, this death didn’t happen. This bodes well for the Ethereum bull case.
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DeFi Is Still Alive and Kicking
In the wake of March’s crypto crash, the value locked in DeFi applications crashed to $500 million from well over a billion. This was to be expected: March’s crash also resulted in an over 50% reduction in the value of top cryptocurrencies.
But according to data shared by data site DeFi Pulse, decentralized finance has since recovered alongside the value of cryptocurrencies.
There is now $953 million worth of assorted crypto assets locked into DeFi applications, according to the site. This is up nearly 100% from the March lows.
Notably, not 100% of the $953 million in DeFi assets is based on Ethereum, but a majority is.
Case in point: Maker, Synthetix, and Compound — all based on Ethereum — hold approximately $750 million worth of assets.
Data of value locked in decentralized finance (mostly Ethereum) from Twitter user Alex.eth (@AlexanderFisher).
Ethereum Stands to Benefit
With DeFi gaining strength once again, analysts say that ETH’s bull case is being strengthened.
The founder of MakerDAO Rune Christensen said that Ethereum through DeFi will attract “all value” in the cryptocurrency space:
“4 million Dai was just minted with WBTC in a single transaction. This really showcases the latent demand for non-ETH assets, and it’s the beginning of a broader trend of DeFi acting as an economic vacuum that will eventually attract almost all value to the Ethereum blockchain.”
There’s also Ryan Selkis, chief executive of crypto research firm Messari.
He explained that due to the introduction of DeFi and the market share it could capture, ETH has a “higher ceiling” to rally towards than 2017/2018’s rally. For reference, the 2017/2018 rally brought ETH to $1,400.
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