Despite facing recent challenges, decentralized finance (DeFi) holds more promise than the conventional financial sector, according to a recent study.
This analysis, conducted by the crypto-centric investment group Hashkey Capital, highlights that DeFi platforms already offer scalability far exceeding their traditional counterparts.
The study notes, “Given the decentralized and self-executing attributes of DeFi platforms, they exhibit an immense scalability potential. Instances where a singular smart contract crafted by one developer handles transactions amounting to billions underscore this point. DeFi’s scalability not only overshadows the conventional finance sector but also outstrips traditional software-as-a-service (SaaS) frameworks.”
The study further emphasized the inherent robustness of DeFi platforms, attributing much of this resilience to their predominant autonomy.
“In the realm of DeFi, the majority of team members are engaged in roles like product development, marketing, and so forth. Yet, even if these individuals were to be absent, the application would remain operational, efficiently handling millions in transactions. This is because DeFi systems largely operate without manual intervention,” the analysis by Hashkey Capital stated, drawing a stark comparison to the modus operandi of traditional financial institutions.
Given the high degree of autonomy inherent in DeFi platforms, the income they yield per employee significantly outpaces that of conventional financial services, the report highlighted.
Difficult year for DeFi
Even with its advantages over conventional financial systems, DeFi hasn’t been immune to challenges in 2022. The sector grappled with a wave of skepticism and a general downtrend in crypto prices, exemplified by ETH, which saw a decline of nearly 68% over the year.
ETH is the fundamental token of the Ethereum blockchain, which serves as the foundation for the majority of DeFi platforms.
Black swans highlight DeFi’s strength
Hashkey Capital’s study posits that unexpected events, such as the downfall of Terra Luna, underscore the robustness of the DeFi sector.
The repercussions of Terra Luna’s collapse were felt most acutely by centralized finance (CeFi) entities, notably crypto lending platform Celsius and the crypto hedge fund, Three Arrows Capital.
Conversely, decentralized platforms navigated this upheaval relatively unscathed. The report emphasized that such protocols have consistently showcased remarkable stability amidst market turbulence.
Significant fall in TVL in 2022
The assertion that DeFi is eclipsing conventional finance coincides with another analysis from Nansen Research, which indicates a marked decline in the total value locked (TVL) in DeFi protocols over the course of the year.
Having peaked at approximately $180 billion towards the end of the preceding year, the current TVL in DeFi projects has plummeted to $41 billion, as per Nansen’s findings. Additionally, the report mentioned a significant decline in the valuation of numerous DeFi tokens.
Nevertheless, the landscape isn’t entirely bleak. The Nansen study expresses optimism as 2023 dawns, spotlighting particular projects, such as Aave (AAVE) and Uniswap (UNI), as noteworthy contenders to watch.
Nansen’s experts emphasized, “The upcoming features on the roadmap for these protocols are indeed promising.”