Developers 4 items
First Mover: Ethereum Gets Unplanned Stress Test as DeFi Fever Grows - CoinDesk (coindesk.com)
This column has written in recent weeks about the surprising possibility that cryptocurrency markets might have become the new home for capitalism, in an environment where central banks and governments are intervening deeply in markets while picking corporate winners via emergency aid. 

If anything, the ridiculousness of the recent weeks’ saga involving the deliciously named startup protocol SushiSwap shows that not only are market signals alive and well in digital assets, but competition is, too. 

While from the outside these markets may seem like a den of rampant speculation, the innovative mania now taking place in the fast-growing arena of decentralized finance , known as DeFi, is providing a test of just how much the 11-year-old digital-asset markets can bear. 

Subscribe to First Mover, our daily newsletter about markets.




By signing up, you will receive emails about CoinDesk products and you agree to our terms & conditions and privacy policy.

The proving ground for most DeFi projects is Ethereum, the second-biggest blockchain, preferred by many developers for its facilitation of “programmable money” through “smart contracts” – bits of programming that stipulate conditions under which transactions occur, as well as any outputs.

The ultimate goal of these DeFi systems is to automate the functions of banks and other financial firms, making them less expensive, more efficient and maybe even fairer in their allocation of capital.

Put another way, entrepreneurs are trying to make a buck by building things they hope people will use. 

DeFi applications have jammed up the Ethereum blockchain, roughly quadrupling median transaction fees, known as “gas,” since the start of the year.

But as the research firm Dapp Radar points out in a new report, the network’s usage has continued to increase


ethereum-transaction-volumes-775x481.png
Ethereum monthly transaction volumes, USD.Source: Dapp Radar
Gambling applications appear to be getting crowded out, but activity has swelled on decentralized lending platforms like Aave and automated, network-based trading systems like Uniswap and Curve.

Total transaction volumes reached nearly $25 billion in August, from less than $5 billion a month earlier in the year. 

“High Ethereum gas prices have not affected the DeFi ecosystem yet,” the publication wrote in its “Dapp Ecosystem Report” for August. Nor have the elevated transaction fees sowed many doubts in the minds of investors.

While prices for ether, the native token of the Ethereum blockchain, have retreated in recent weeks, they’ve still nearly tripled since the start of the year, to about $367. 

John Todaro, director of institutional research for the cryptocurrency-analysis firm TradeBlock, estimated this week in a report that daily fees collected on the Ethereum network have climbed to an average $5 million a day, implying an annual run rate of about $1.5 billion.

“Users have flocked to trading DeFi tokens as they have become the hottest new sector in the space,” Todaro wrote. 

Shiv Malik, co-founder of the Intergenerational Foundation think tank, wrote Thursday in an op-ed for CoinDesk that a lot of the DeFi activity might just be “token speculation” and “manufactured out of nothing,” with “no actual coffee under all that froth.”  

But based on the recent data, the market appears to be working. And customers are apparently willing to pay. 

median-eth-trans-fees-1-year-coin-metric
Ether median transaction fees (in green, right-hand scale), with ether price (in red, left-hand scale), both in USD.Source: Coin Metrics
    • 1
    Francisco Gimeno - BC Analyst We have stated that DeFi is not a bubble, or a bad idea. In fact it maybe one of the most successful products coming from the crypto market to help institutions and banks to get used to the digital economy. However, there are growing issues and speculation and bubbles may happen. The Ethereum blockchain infrastructure had problems coping with DeFi sudden success. It is interesting to see, from a tech point of view, what will happen in the next future.