According to a Federal Reserve Bank report, ‘DeFi can result in a paradigm change.’

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Ethereum has sparked a flood of financial creativity.

The Federal Reserve Bank of St. Louis released a paper that looked at the growth of decentralised finance and Ethereum’s position in it.

Dr. Fabian Schär’s report, released on May 2, took a deep dive into the field of DeFi, implying that if security issues and threats may be resolved, it may contribute to significant improvements in the financial sector.

“DeFi uses smart contracts to create protocols that replicate existing financial services in a more open, interoperable, and transparent way,” Dr. Fabian Schär wrote, also hailing its efficiency, accessibility, and composability.

“DeFi may lead to a paradigm shift in the financial industry and potentially contribute toward a more robust, open, and transparent financial infrastructure.”

DeFi growth has been phenomenal in the last year, with a 700% rise in overall valuation locked around the ecosystem. According to DefiLlama, at the time of writing, the number has reached an all-time high of about $134 billion through various blockchain.

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Dr. Schär clarified that smart contracts, the bulk of which operate on Ethereum, are the foundation of the whole DeFi ecosystem. The study includes a list of common DeFi-related tokens, but emphasises that the vast majority of tokens are distributed on the Ethereum network.

According to Defipulse, 10.5 million ETH, or 9 percent of the total stock, is locked up as leverage for a wide range of DeFi protocols.

According to Schär, a professor of Distributed Ledger Technologies at the University of Basel in Switzerland, Ethereum has spawned a surge of blockchain-based creativity.

He went on to say that the rise of digital assets like ETH, as well as the prospects for DeFi, indicate that the sector is on the rise:

“The spectacular growth of these assets alongside some truly innovative protocols suggests that DeFi may become relevant in a much broader context and has sparked interest among policymakers, researchers, and financial institutions.”

According to the ConsenSys Q1 DeFi survey, the number of Ethereum addresses communicating with DeFi protocols has reached an all-time high of 1.75 million, a tenfold increase since the beginning of 2020.

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The study contributes to Ethereum’s bullish momentum, which has seen it outperform Bitcoin this year, propelling the currency to an all-time peak of just over $3,500 on May 4.

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