Ethereum’s decentralized finance (DeFi) tokens have been all the rage over recent weeks, with some literally rallying parabolically.
Take the example of Aave’s LEND, which has gained in excess of 184.8% in the past 30 days and 7,500% in the past year. Or take the example of Synthetix Network Token (SNX), which is also up by almost 200% in the past month.
With such strong price action, there have been some suggestions that DeFi is in a bubble poised to pop.
Weiss Crypto Ratings, market research firm Weiss Ratings’ cryptocurrency division, wrote in June:
“DeFi is one of the most exciting things going on in crypto right now, but the idea that sector will decouple from the rest of the market is ludicrous. Eventually, the mania will end, and DeFi will trade in line with the rest of the market.”
Yet analysts agree that DeFi has the potential to grow even further in the months and years ahead.
How? China, apparently.
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Ethereum DeFi Can Grow Even Further: The China Effect
According to Dovey Wan, a founding partner of Primitive Ventures, China is not yet excited about the ongoing DeFi craze.
She attributed this to a confluence of factors, which include:
- DeFi’s ongoing “yield farming” phase is reminiscent of China’s “exchange liquidity mining” phase, which ended with a large bust. The similarities between the two trends of DeFi and exchange liquidity mining is likely deterring some Chinese investors.
- Since DeFi is very Ethereum-centric, it is naturally not a Chinese community; ETH is not prevalent in certain parts of Asia.
- Most DeFi applications only have English user interfaces right now and much of the industry’s information is only in English, making it hard for certain demographics to feasibly access DeFi apps.
For those that desire growth, a lack of Chinese capital may be seen as a bad thing. After all, what drove many ICOs and the price of Bitcoin in 2017 was actually a Chinese user base.
But until there are more stable incentive structures, multi-lingual user interfaces, and data/information for global audiences, DeFi’s growth in China will be hard to come by.
Fees Are An Issue
Also preventing growth in DeFi is high Ethereum transaction fees.
Kevin Beardsley, the head of business development of Kraken’s futures division, recently said:
“I have spent $14 on ETH gas fees to transfer/lock my $15 into @CurveFinance and I’m earning a princely $0.079 in weekly $SNX rewards. I’ll break even in just 177 short weeks! (not including gas to close contracts.”
That’s to say, at current transaction costs, a majority of small-scale users are crowded out as it becomes unprofitable to use DeFi.
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