Total value locked in DeFi could be overvalued

Total value locked in decentralized financing (DeFi) protocols recently exceeded $ 6 billion.

Today, the figure is $ 6.32 billion, after rising nearly six times in less than three months from $ 1 billion. The exponential growth recorded this year can be largely attributed to the advent of yield farming and the introduction of the Compound protocol.

Is the total value locked in DeFi overestimated?

However, the founder of the Encode Club, Damir Bandalo, claims that this information is somewhat inflated. Instead of $ 6.32 billion, Bandolo says $ 3.5 billion is a better estimate of the true value locked in the top 15 DeFi protocols.

Although the numbers quoted by different DeFi data sources may be somewhat increased, this happens in traditional finances as well.

The total value locked in DeFi protocols can be difficult to calculate because one dollar can create its value several times. For example, a user can lock Ether (ETH) in MakerDAO to create a DAI, a decentralized stablecoin based on USD.
The user can then lock the same DAI in another protocol, and duplication does not end there, because different protocols allow for different lending and duplication procedures.

However, co-founder of DeFi Pulse defended the website’s calculations on Twitter, saying that considerable efforts were being made to ensure their accuracy. He pointed out that Bandalo had made his own mistakes.

“We work really hard to remove double counted assets from @defipulse exactly to avoid this problem. The TVL only passed $6B today, for the first time ever, and has never sniffed “$6.7B.” If you find one we missed, please let us know.”

Is there room for growth?

Only about 3.85% Ether and 0.18% Bitcoin (BTC) are locked in DeFi, which means that there is still room for growth. Wrapped Bitcoin (wBTC) is the most popular form of tokenized BTC on the Ethereum blockchain, and about 50% of its market capitalization of $ 274 million is locked in the Compound Protocol. RenBTC, a decentralized version of wBTC, is also beginning to gain in popularity.

Ether remains the most popular cryptocurrency in the DeFi ecosystem, with 50% of the locked value, while BTC is only 10%. Stablecoins represent 33% of the total locked value, and the remainder is other ERC-20 tokens, such as the Basic Attention Token (BAT), Augur (REP), and others.

Regardless of the total value of the USD locked in the DeFi ecosystem, there is clearly enough room for growth. It is likely that the value will continue to increase as yield farming and other forms of lending gain in popularity.

While many believe that DeFi is the future of finance, the nascent sector still has major security challenges to address. So far, it seems to be a market reminiscent of the ICO hype in 2018. This leads to poorly planned and hasty projects.