JPMorgan Team Suggests Crypto’s DeFi Boom Slower Than It Seems

(Bloomberg) -- The expansion in decentralized finance, one of the most-touted cryptocurrency trends, is less explosive than at first glance, according to an analysis by strategists at JPMorgan Chase & Co.

Decentralized finance -- or DeFi -- refers to blockchain-based services like borrowing, investing and trading that skirt traditional banks. Many applications run on the Ethereum network and make use of its native token, Ether, whose price shot up about 540% this year to more than $4,700.

In dollar terms DeFi growth on the Ethereum blockchain tops 780% this year, mostly reflecting that Ether price rally, the study from the JPMorgan team led by Nikolaos Panigirtzoglou showed. Looking instead at the volume of Ether tokens locked up in DeFi indicates a slower but still robust 50% climb in 2021, they said.

The Ethereum network now has about a 70% share of DeFi activity, versus a near-total lock at the start of the year, the team added. The 50% estimated expansion adjusts for this shift, it said.

“There is little doubt that DeFi is still at early stages and thus has a lot of potential to grow over time,” the strategists said. “But until it becomes mainstream it faces several hurdles, especially regulatory.”

Regulators have begun to question areas like crypto lending amid concerns about risks for participants and possible spillovers into mainstream finance. DeFi’s overall market value was more than $170 billion on Friday, according to tracker CoinGecko, compared with some $22 billion at the start of 2021.

©2021 Bloomberg L.P.