DeFi is a ‘once in a decade investment opportunity’: True or false?
DeFi could be a huge investment opportunity, a bubble ready to burst, or both.
Former Messari Head of Product and well known crypto trader Qiao Wang believes the nascent DeFi sector has enormous growth potential.
DeFi has been on a tear this year, with the total value locked growing from under $1 billion to just under $8 billion today. Since the beginning of 2020, TVL across all DeFi platforms in dollar terms has increased over 1000% and it does not look like slowing down anytime soon.
Wang compared this year’s DeFi boom to pre-2013 Bitcoin and pre-2015 Ethereum which, he stated, were “once-in-a-lifetime asymmetric bets.”
From an investment point of view, BTC pre-2013 and ETH pre-2015 were once-in-a-lifetime asymmetric bets. DeFi pre-2021 is once-in-a-decade IMO (until proven wrong). If you’ve missed the first two don’t miss the latter.
— Qiao Wang (@QwQiao) September 9, 2020
It’s a markedly different stance to Messari founder Ryan Selkis who earlier today asserted that DeFi is a bubble that is destined to pop soon. He attributed this to a surge in “Ponzi economics, rug pulls, and ‘yield’ hopping,” adding that high gas fees are reducing the opportunity for profits for regular DeFi users.
Comparing DeFi to the multi-trillion dollar world of banking and traditional finance shows that it has a lot of room for growth. And even compared to the crypto market as a whole, DeFi is still just a blip with a market cap for the leading 37 DeFi tokens representing just $6.7 billion, or 2% of the total market capitalization of all cryptocurrencies according to Messari.
Many DeFi proponents believe the entire sector can continue to thrive simply by drawing investors away from multi billion dollar “ghost chains” — layer one blockchain projects popular during the 2017 ICO boom that have failed to attract users but are still worth exponentially more than DeFi.
Google Payments engineer Tyler Reynolds today questioned the economics of crypto assets with “no future” being worth so much more than some DeFi tokens. He specifically cited XRP, Bitcoin Cash, Bitcoin SV, EOS, Cardano, and Stellar as projects that have multi-billion dollar market capitalizations in stark contrast to Yearn Finance’s YFI, which is “only” worth $670 million.
However, the DeFi bubble deflated slightly recently after a wave of buggy, cloned products and yield farming schemes drove gas prices on Ethereum to unsustainable highs. Wang warned about some of the less than honest clones and DeFi doppelgangers that have appeared in recent weeks;
“There was a lot of crap over the past 2 months but don’t get distracted by these.”
Instead he suggested experimenting with some of the better DeFi products to get a sense of how the fledgling financial ecosystem enables fundamentally new and interesting user behaviors.
He also admitted that the current yield farming craze could actually be a bubble, but said that it didn’t matter in the long run:
“It’s actually possible to simultaneously believe that most of yield farming is zero-sum bubble destined to pop *and* that DeFi is the future of finance.”