Decentralized financing (DeFi) is a natural product made possible by blockchain technology and has the right infrastructure ready to propel the technology onto a wider playing field. The space has grown by leaps and bounds since the Ethereum network went live in July 2015, with Ethereum network transactions increasing 33 times to currently 1.2 million per day, and blockchain transactions reportedly exceeding millions per day. day if other channels were included.

Most of these transactions came from DeFi services like Uniswap, which facilitate more than $ 1 billion in trades every day, as well as lending and borrowing protocols like Aave, Compound, and BondAppetit, with tens of billions. market size. While these are big numbers by any standards, they are only a decimal point of the trillion dollar traditional finance industry (TradFi).

DeFi is only scratching the surface of TradFi services

The traditional financial system involves enabling the exchange of goods and services, including the stock market, debt market, derivatives market, commodity market, payment, etc. This is facilitated by service providers – banks, insurance companies, stock exchanges, financial intermediaries, custodians, etc. – who collect billions of dollars in fees for the services provided.

Consumer DeFi services currently include lending, borrowing, decentralized exchanges, and aggregation of returns – a relatively short list compared to the many financial services offered in TradFi. This will not remain the status quo as DeFi developers actively explore and create more services for the ecosystem. Protocols that find the right product / market fit will experience explosive growth, for example, the recent rise of dYdX.

Trillion dollar TradFi market ripe for disruption

Retail banking. The overall turnover of retail banking is valued to $ 2.3 trillion on several consumer finance products including loans / loans, mortgage products, payments, etc. acceptance points – Diem’s ​​ambition from Facebook before regulatory refoulement.

Capital market. Global market capitalization is valued to over $ 100,000 billion, compared to just over $ 243 billion of total value blocked (TVL) in decentralized finance. Security tokens are an inevitable trend that regulators will eventually have to approve and build the regulatory framework, and centralized and decentralized exchanges that adhere to the know-your-customer (KYC) requirement can exploit this trillion-dollar stock market in TradFi.

Assurance. The global insurance industry is another trillion dollar TradFi industry that can be perfected with smart contract technology. About a third of the global insurance premium is spent on administrative and commission costs, which primarily hurts the consumer. Smart contracts enable cheap, fast and accurate implementation of insurance processes, from underwriting to claims, and will be a lucrative revenue stream for the DeFi industry.

The size of the DeFi addressable market

Volume of transactions. The Ethereum network processes over 1.3 million transactions every day in 2021, spanning remittances, trading, lending, borrowing, and various other types of transactions. It is a small number because compared to more than 1 billion daily credit card transactions worldwide, and some 5.5 billion daily transactions trade volume at NASDAQ. Capturing 1% of credit card transactions on the Ethereum chain is equivalent to at least 8 times its current volume.

Protocol recipes. Annualized protocol revenues in all DeFi protocols are estimated at $ 5 billion. This, again, is a fraction of the $ 2.3 trillion in global retail banking revenues; $ 2 trillion in global cross-border payment revenue and $ 35 billion in global stock exchange revenue. The TradFi industry is so lucrative that grabbing a 1% market share means 10 times the revenue from DeFi.

Crypto crackdown accelerates DeFi trend. Even though countries like China continues to crack down on crypto, it will only speed up the use of DeFi. active Ethereum wallet and MetaMask browser extension users have 10x-ed to 10 million in August 2021. While this is a seemingly high number, it only represents a 5% penetration rate among the 221 million global crypto users. This shows that general crypto users, who are used to frictionless centralized services like Robinhood, are a huge untapped market for DeFi and can be captured as the UI / UX is improved.

Related: China Crypto Ban: Buy Down Or Worry?

DeFi is only three years old with services that became mainstream for the crypto community in the summer of 2021 DeFi. Lending platforms, such as Compound and Aave, as well as decentralized exchanges such as Uniswap and Curve, have consolidated their position as market-leading protocols with the first-mover advantage. These have not been easy. Uniswap Founder Hayden Adams wrote an article detailing his journey to launching Uniswap V1 – it’s the culmination of faith, friendship, support and hard work during the crypto winter. The community of DeFi builders has grown stronger in this new cycle with more programmers from traditional startups and big tech joining the blockchain and DeFi scene, and that can only mean that we have more resources than ever to expand the space. and technology.

On February 4, 2004, a dorm project was born that grew into a $ 1 trillion business with 3 billion users in 2021 – it’s called Facebook, or Meta after rebranding. DeFi has just started, and with the resources and talents now flowing into space, growing 100-fold over the next 5 years isn’t a dream, it’s inevitable.

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