Decentralized Finance (DeFi) is a natural product created by blockchain technology and has the right and ready-made infrastructure to bring this technology to a larger playing field. The space has grown by leaps and bounds since the Ethereum network went live in July 2015, with Ethereum network transactions currently increasing 33x to 1.2 million per day and blockchain transactions to over million per day.

Most of these transactions come from DeFi services like Uniswap, which enables swaps of more than $ 1 billion per day, as well as tens of billions of dollars in credit and credit protocols like Aave, Compound, and BondAppetit in the market. While these are big numbers by any yardstick, it’s just the trillion dollar traditional finance industry (TradFi) decimal point.

DeFi only scratches the surface of TradeFi services

The traditional financial system must enable the exchange of goods and services, including stock markets, debt markets, derivatives markets, commodities markets, payments, etc. Service providers – banks, insurance companies, stock exchanges, financial intermediaries, custodians, etc. – charge billions in fees from the services they provide.

DeFi’s mainstream services currently include lending, borrowing, decentralized trading, and profit aggregation – a relatively short list compared to the wide range of financial services offered in TradFi. This won’t remain the status quo as DeFi developers are actively researching and building more services for the ecosystem. The right product / market fit protocols will see explosive growth such as the recent surge in dYdX.

The trillion dollar TradeFi market is ripe for disruption

Consumer-centric banking. Global retail sales are estimated at $ 2.3 trillion across a variety of consumer finance products including loans / credits, mortgage products, payments, and more. Consumer payments and transactions are and can generate more than $ 500 billion in annual revenue for banks worldwide Easily mined UI, a global stablecoin and universal collection points – refer to Facebook Diem’s ​​expectations in the face of regulatory objections.

Capital market. Global market capitalization is estimated to be over $ 100 trillion, compared to a Total Value Locked (TVL) of just over $ 243 billion in decentralized finance. Security tokens are such an inevitable trend that regulators will eventually need to approve and build a regulatory framework and centralized and decentralized exchanges that suit your client needs. (KYC) can tap this trillion dollar stock market in TRADIFI.

Insurance money. The global insurance industry is another trillion-dollar TradeFi industry that could be perfected through smart contract technology. About a third of the world’s premiums are for administrative and commission costs, essentially a short-term change for consumers. Smart contracts enable cost-effective, fast and accurate handling of insurance processes from underwriting to claims and will be a lucrative source of income for the DeFi industry.

DeFi’s addressable market size

Trading volume. The Ethereum network will process more than 1.3 million transactions per day through 2021, including wire transfers, transactions, loans, credits, and many other types of transactions. This is a small number compared to the more than 1 billion daily credit card transactions worldwide and the daily transaction volume of around 5.5 billion on the NASDAQ. The recording of 1% of the credit card transactions in the Ethereum chain corresponds to at least 8 times the current volume.

Log revenue. The annual log revenue of all DeFi protocols is estimated at $ 5 billion. That, in turn, is a fraction of the $ 2.3 trillion in global retail revenue; $ 2 trillion in global cross-border payments and $ 35 billion in global stock market revenue. The TradeFi industry is so lucrative that a 1% market share means a 10-fold increase in DeFi sales.

Cryptocurrency Crackdown Accelerates DeFi. While countries like China continue to crack down on cryptocurrencies, it will only speed up DeFi usage. An active Ethereum wallet and browser extension MetaMask users grew ten-fold to 10 million by August 2021. While this is seemingly a high number, it only represents a 5% penetration rate of 221 million global crypto users. This shows that crypto users in general, used to smooth centralized services like Robinhood, are a huge untapped market for DeFi are and can be conquered if the user interface improves the user / UX.

Related: China’s cryptocurrency ban: discount or cause for concern?

DeFi is only three years old and has services that went mainstream for the crypto community in the summer of DeFi 2021. Loan platforms such as Compound and Aave as well as non-profit exchanges such as Uniswap and Curve have consolidated their position as market-leading protocols with first-mover advantage. These things are not easy. Uniswap founder Hayden Adams wrote an article about his path to launch Uniswap V1 – it was a culmination of trust, friendship, support and hard work throughout the crypto winter. The DeFi builder community has grown stronger in this new cycle as more programmers from traditional startups and big tech enter the blockchain and DeFi arena, and it just means we have more resources than ever to space and To develop technology.

On February 4, 2004, a dorm project was born and grew into a $ 1 trillion company with 3 billion users by 2021 – it was called Facebook or, after the trade exchange, Meta. DeFi is just getting started, and with resources and talent flowing into the area, 100x growth over the next 5 years is not a dream but inevitable.

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