DeFi could grow 100 times its current level in the next 5 years

The DeFi sector is currently only 0.1% of its maximum potential and explosive growth is inevitable.

DeFi is a natural product that was created by blockchain technology and has the right infrastructure and is ready to bring this technology to a larger playing field. It has grown by leaps and bounds since the Ethereum network went live in July 2015, with Ethereum network transactions now increasing 33x to 1.2 million transactions per day and other blockchain transactions reported.

Most of these transactions come from DeFi services like Uniswap, which enables swaps of over $ 1 billion per day, and credit and credit protocols like Aave, Compound, and BondAppetite, which have a market size of tens of billions. While these are big numbers in any case, it’s a tiny fraction of the trillion-dollar TradFi (TradFi) industry.

Daily trading volume of Ethereum | Source: YCharts

DeFi only addresses a small part of the TRAFI services

The traditional financial system enables the exchange of goods and services including stock markets, debt markets, derivatives markets, commodities markets, payments, etc. Service providers such as banks, insurance companies, exchanges, financial intermediaries, custodians who collect trillions of dollars in fees from the services provided.

DeFi and TradeFi | Source: BondApppetit.io

Mainstream DeFi services currently include lending, borrowing, decentralized trading and profit aggregation, a relatively short list compared to the wide range of financial services offered in TRADF. Of course, the status quo will change as DeFi developers actively research and build 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 has ruptured

Consumer-centric banking. Global retail sales are estimated at $ 2.3 trillion for a variety of consumer finance products including credit / loans, mortgage products, payments, and more. Dollars and can easily degraded user interface, a global stablecoin and widespread acceptance points – Facebook’s DIEM ambition in the face of regulatory objections.

Capital market. Global market capitalization is estimated at over $ 100 trillion, compared to a Total Value Locked (TVL) of just over $ 243 billion in DeFi. Security tokens are such an inevitable trend that regulators will eventually have to approve and build a regulatory framework and centralized and decentralized exchanges (DEXs) to meet identity verification requirements. KYC can tap into that trillion dollar stock market in TRADIFI.

TVL in DeFi | Source: DeFiliama

Insurance company. The global insurance industry is another trillion dollar TradeFi industry that could be perfected with 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.

Identifiable market size by DeFi

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 on the Ethereum blockchain corresponds to at least 8 times the current volume.

Number of transactions in the Ethereum network | Source: BondApppetit.io

Log revenue. The annual log revenue of all DeFi protocols is estimated at $ 5 billion. That’s 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.

Active users on Metamask | Source: BondApppetit.io

The crackdown by the cryptocurrency is accelerating the DeFi trend. While countries like China continue to crack down on cryptocurrencies, it will only speed up DeFi usage. Active Ethereum wallets and users of the MetaMask browser extension grew tenfold to 10 million by August 2021. While this may seem like a large number, it is only 5% of the number. 221 million global crypto users. This shows that crypto users in general, accustomed to smooth centralized services like Robinhood, are a huge untapped market for DeFi and can be captured if the user interface improves the user experience (UX).

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