First Mover: Ethereum Gets Unplanned Stress Test as DeFi Fever Grows

First Mover: Ethereum Gets Unplanned Stress Test as DeFi Fever Grows

DeFi is pushing up usage and fees on Ethereum, and the blockchain network so far is passing the stress test. (Flickr Creative Commons, modified by CoinDesk)

This column has  about the surprising possibility that cryptocurrency markets might have become the , in an environment where central banks and governments are intervening deeply in markets while picking corporate winners via emergency aid. 

If anything, the ridiculousness of the recent weeks’ saga involving the  shows that not only are market signals alive and well in digital assets, but competition is, too. 

While from the outside these markets may seem like a , the  now taking place in the , known as DeFi, is providing a test of just how much the 11-year-old digital-asset markets can bear. 

The proving ground for most DeFi projects is Ethereum, the second-biggest blockchain, preferred by many developers for its facilitation of “programmable money” through “smart contracts” – bits of programming that stipulate conditions under which transactions occur, as well as any outputs.

The ultimate goal of these DeFi systems is to automate the functions of banks and other financial firms, making them less expensive, more efficient and maybe even fairer in their allocation of capital. Put another way, entrepreneurs are trying to make a buck by building things they hope people will use. 

DeFi applications have jammed up the Ethereum blockchain, roughly quadrupling  since the start of the year. But as the research firm Dapp Radar points out in a new report, the . 

Gambling applications appear to be getting crowded out, but activity has swelled on decentralized lending platforms like Aave and automated, network-based trading systems like Uniswap and Curve. Total transaction volumes reached nearly $25 billion in August, from less than $5 billion a month earlier in the year. 

“High Ethereum gas prices have not affected the DeFi ecosystem yet,” the publication wrote in its “Dapp Ecosystem Report” for August. 

Nor have the elevated transaction fees sowed many doubts in the minds of investors. While prices for , the native token of the Ethereum blockchain, have retreated in recent weeks, they’ve still nearly tripled since the start of the year, to about $367. 

John Todaro, director of institutional research for the cryptocurrency-analysis firm TradeBlock, estimated this week in a report that daily fees collected on the Ethereum network have climbed to an average $5 million a day, implying an annual run rate of about $1.5 billion.

“Users have flocked to trading DeFi tokens as they have become the hottest new sector in the space,” Todaro wrote. 

Shiv Malik, co-founder of the Intergenerational Foundation think tank, wrote Thursday in an op-ed for CoinDesk that a lot of the DeFi activity might just be “” and “manufactured out of nothing,” with “no actual coffee under all that froth.”  

But based on the recent data, the market appears to be working. And customers are apparently willing to pay. 

remains trapped in a narrow range of $10,000 to $10,500 for the seventh straight day with both bulls and bears unwilling to lead the price action.

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– Omkar Godbole

Ethereum (): Ether balances on exchanges have fallen to a , potentially suggesting traders are using their tokens to make money from DeFi applications such as yield farming.   

SushiSwap (): Co-founder of “vampire” protocol tells CoinDesk China his partners on project were “.” 

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