“DeFi can lead to a paradigm shift,” says the Federal Reserve Bank paper
A paper published by the Federal Reserve Bank in St. Louis looked at the expansion of decentralized funding and the role of Ethereum in it.
Dr. The study, written by Fabian Schär and published on May 2nd, provided an in-depth look into the world of DeFi and indicated that security concerns and risks, if addressed, can lead to major changes in the financial industry.
“DeFi uses smart contracts to create protocols that replicate existing financial services more openly, interoperably, and transparently,” wrote Dr. Fabian Schär and also praised its efficiency, accessibility and composability.
“DeFi can lead to a paradigm shift in the financial industry and potentially contribute to a more robust, open and transparent financial infrastructure.”
The DeFi growth last year has been enormous: the total value of the entire ecosystem increased by 700%. At the time of writing, that number was at an all-time high of around $ 134 billion across various blockchain areas, according to DefiLlama.
Dr. Schär stated that the backbone of the entire DeFi ecosystem are smart contracts, most of which run on Ethereum. The report lists a number of popular DeFi tokens, but indicates that the vast majority of tokens are issued on the Ethereum network.
ETH is also used as security for a variety of DeFi protocols and 10.5 million ETH, or 9% of the total supply, is locked down, according to Defipulse.
Schär, Professor of Distributed Ledger Technology at the University of Basel in Switzerland, said that Ethereum had triggered a wave of innovation based on blockchain technology.
He added that the growth of digital assets like ETH and the potential for DeFi mean the sector is destined for bigger things:
“The spectacular growth of these assets, along with some really innovative protocols, suggests that DeFi could become relevant in a much broader context and has caught the interest of policymakers, researchers and financial institutions.”
According to the ConsenSys Q1 DeFi report, the number of Ethereum addresses interacting with DeFi protocols is at an all-time high of 1.75 million, after growing 10-fold since early 2020.
The study adds to the upward momentum of Ethereum, which outperformed Bitcoin this year, pushing the asset to an all-time high of just over $ 3,500 on May 4.