Could DeFi Be Ethereum’s Killer App?

By Andy Hao

Decentralized Finance applications, or ‘DeFi apps’ as they’re more popularly known in the cryptocurrency community, have been quietly growing into a $500 million sub-industry over the last year, and they’re showing no signs of slowing.

Total Value Locked, or TVL, is a metric that measures the total amount of money that’s “locked up”, or committed, via an app’s smart contracts. So with a decentralized loan app, for example, TVL would measure the amount tied up in loans currently

When used to analyze the industry collectively, it’s a helpful figure for determining how much real-world use DeFi apps are getting. And it’s starting to suggest that DeFi might be ETH’s killer app.

In late 2017, Maker launched and generated an enormous amount of fanfare with its lending and stablecoin application. For many months, MakerDAO was essentially the only the DeFi app with any significant traction.

But then came apps like Compound, and Dharma, and Uniswap, allowing anyone to earn money, swap tokens, and lend or borrow without third party permission.

All three of these got off to a slow start, but their progress has been consistent. Compound, Uniswap, and dYdX all have over $10 million of value locked into their smart contracts now, and those are just a few of the big names. As of this writing, seven applications now have over $10 million locked into their applications, according to DeFi Pulse, and Dharma isn’t far behind, at $8.9 million locked.

Artboard 1xrp-price.jpg

Moreover, when expressed in ETH terms (ETH is the currency many people use to access DeFi apps), the total value locked into smart contracts across the suite of DeFi apps available today has hit an all-time high. 

Back in April, the amount of ETH locked in DeFi was slightly higher than it is currently, but 90% of that belonged to MakerDAO. The figure dropped as the summer went on, but has recently shot past its all-time ETH high on the back of fast-growing newer apps like Compound, InstaDapp, Synthetix, and more (although in USD terms, TVL has been relatively steady since mid-July). 

As of this writing, more than 2.6 million ETH are locked up in DeFi apps, according to DeFi Pulse. Put another way, this means that of the 100 million or so ETH in existence today, over 2% of that supply is currently locked up in DeFi applications.

That’s good news for DeFi apps, and it could be good for traders, too. As this number continues to rise, it could create a supply shortage on the ETH market, and any increases or decreases in demand would thus have stronger effects on ETH prices.

DeFi is showing signs that it might be the missing ‘killer app’ that the Ethereum ecosystem has been searching for.

Subscribe to our weekly newsletter

We use data to help you understand the latest developments in crypto and blockchain.