• Latest
Mind the Gap: Why ETH Price and DeFi Adoption Aren’t in Sync

Mind the Gap: Why ETH Price and DeFi Adoption Aren’t in Sync

Februar 16, 2020
6 Questions for Rene Reinsberg of Celo – Cointelegraph Magazine

6 Questions for Rene Reinsberg of Celo – Cointelegraph Magazine

März 31, 2023
Judge denies SEC motion to keep Hinman docs secret in Ripple case

Judge denies SEC motion to keep Hinman docs secret in Ripple case

März 31, 2023
The ultimate guide to Miami – Cointelegraph Magazine

The ultimate guide to Miami – Cointelegraph Magazine

März 31, 2023
Dr. Jane Thomason – Cointelegraph Magazine

Dr. Jane Thomason – Cointelegraph Magazine

März 31, 2023
1658007797 celsius is bankrupt with 12b balance sheet hole su zhu.jpg

Celsius is bankrupt with $1.2B balance sheet hole, Su Zhu returns to Twitter and OpenSea purges 20% of employees: Hodler’s Digest, July 10-16

März 31, 2023
6 Questions for Lisa Fridman of Quadrata – Cointelegraph Magazine

6 Questions for Lisa Fridman of Quadrata – Cointelegraph Magazine

März 31, 2023
Jed McCaleb empties XRP wallet after eight-year selloff

Jed McCaleb empties XRP wallet after eight-year selloff

März 31, 2023
Celsius has finally filed for bankruptcy: Law Decoded, July 18-25

Celsius has finally filed for bankruptcy: Law Decoded, July 18-25

März 31, 2023
The ‘godfather of crypto’ risked lifetime in jail, laying foundation for Bitcoin – Cointelegraph Magazine

The ‘godfather of crypto’ risked lifetime in jail, laying foundation for Bitcoin – Cointelegraph Magazine

März 31, 2023
SEC objects to XRP holders aiding Ripple defense

SEC objects to XRP holders aiding Ripple defense

März 31, 2023
Blockchain technology is transforming the real estate market – Cointelegraph Magazine

Blockchain technology is transforming the real estate market – Cointelegraph Magazine

März 31, 2023
1658612147 nfts banned in minecraft sec lists 9 tokens as securities.jpg

NFTs banned in Minecraft, SEC lists 9 tokens as securities and 3AC founder blames cockyness for company meltdown: Hodler’s Digest, July 17-23

März 31, 2023
  • Home
  • Coin Market Cap
  • Bitcoin
  • Ethereum
  • Ripple
  • Litecoin
  • Alt Coin
  • Business
  • Trading
  • Mining
CoinNewsDaily
  • Home
  • Coin Market Cap
  • Bitcoin
  • Ethereum
  • Ripple
  • Litecoin
  • Alt Coin
  • Business
  • Trading
  • Mining
No Result
View All Result
  • Home
  • Coin Market Cap
  • Bitcoin
  • Ethereum
  • Ripple
  • Litecoin
  • Alt Coin
  • Business
  • Trading
  • Mining
No Result
View All Result
CoinNewsDaily
No Result
View All Result
Home Business

Mind the Gap: Why ETH Price and DeFi Adoption Aren’t in Sync

coinnewsdaily by coinnewsdaily
Februar 16, 2020
in Business
0
Mind the Gap: Why ETH Price and DeFi Adoption Aren’t in Sync
190
SHARES
1.5k
VIEWS
Share on FacebookShare on Twitter

In his 1991 book, „Crossing the Chasm,“ management consultant Geoffrey Moore defined a crucial gap between the early adopters of a new technology and the larger populations of users that come later. Decentralized finance (DeFi) may now be approaching a gap of its own.

This article focuses on DeFi services that allow deposits of ether (ETH), ethereum’s native asset, as collateral for loans issued in a dollar-pegged stablecoin, DAI. Lending is decentralized to the extent it is managed by an open network of participants, governed by rules and incentives established in a computer program. Borrowers may deposit these stablecoins to earn income, convert them to cash or use them to make leveraged investments in ETH and other crypto assets.

Related articles

IoTeX’s MachineFi Lab challenges Big Tech by democratizing IoT to benefit users and businesses

IoTeX’s MachineFi Lab challenges Big Tech by democratizing IoT to benefit users and businesses

Juli 26, 2022
ygg sea surpasses 10,000 scholarships in just six months of launch

YGG SEA Surpasses 10,000 Scholarships in Just Six Months of Launch

Mai 6, 2022

DeFi lending’s gains are impressive, but their relationship to the ETH price bears watching.

Demand for DeFi lending services built on ethereum shows a pattern of inverse relationship to the price of ETH. When ether prices are falling, the amount of ETH locked in DeFi tends to rise. Most recent data indicate the relationship operates the other way, too. (Data is from DeFi Pulse via Concourse Open.)

ETH deposits in DeFi lending and price, 2020 year to date (chart)

If this apparent relationship persists, it may indicate a circular user adoption of DeFi lending that could be limited to a small percentage of the number of existing ETH holders. That is, existing DeFi lending offerings may not be sufficiently attractive to cross the chasm and draw new users into ethereum.

The early adopter in this analysis is the long-term holder of ETH, motivated by conviction that ETH’s value will increase in the future. For such investors, DeFi lending offers a way to earn income or free up capital, as outlined above.

Some of these uses, such as income-earning deposits and cash conversions, may accelerate during dips in price, explaining the apparent inverse pattern between ETH price and ETH locked in DeFi lending. A declining price increases the cost of selling under duress.

Leveraged buying is a possible exception, and proponents of DeFi lending point this way. “What DeFi is creating is a virtuous cycle where investors who have higher risk tolerance are locking up ETH to generate Dai and leverage long ETH,” Mariano Conti, head of smart contracts at MakerDAO, told CoinDesk Research.

Currently, Maker, the largest DeFi lending operation by ETH deposits, has a minimum collateralization ratio of 150 percent, meaning $150 worth of ether is required as collateral to borrow $100 worth of DAI. The leverage implied by this ratio is 1.67X.

Liquid derivatives markets like BitMEX, Huobi and OKEx offer up to 100x leverage on crypto assets including ETH. With these options before them, how many long-ETH investors are likely to choose DeFi lending as a means to leveraged trading?

It’s also difficult to envision adoption among a wider market of borrowers not yet initiated into crypto investing. Would a Main Street borrower purchase ETH in order to obtain a cash loan worth less than said ETH? Perhaps, if DeFi lenders could accept non-crypto collateral. This would not be a trivial development.

“I see lots of startups playing with identity type solutions to reduce collateral requirements, but I think these are a long ways out from meaningfully impacting the market,” Kyle Samani, managing partner of Multicoin Capital, told CoinDesk Research. “There are a lot of hard, intertwined problems to make this work.”

(CoinDesk discussed the issue with Samani and Jordan Clifford of Scalar Capital in a live webinar on crypto lending, held in December. You can sign up to view it here.)

As for that inverse relationship between ETH price and ETH deposits in DeFi lending, if it persists it may indicate the category is approaching an adoption limit. If the inverse relationship is broken or reversed, that may signal DeFi lending has indeed found a set of use cases capable of bringing it, and ethereum, to a wider market.

Disclosure Read More

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Credit: Source link

Tags: BusinessCryptoCrypto BusinessDigital Currency Groupmanagement consultantmanaging partnermedia outletScalar Capital
Share76Tweet48
Previous Post

Exploit During ETHDenver Reveals Experimental Nature of Decentralized Finance

Next Post

Privacy Laws Are Only as Effective as the Companies Implementing Them

coinnewsdaily

coinnewsdaily

CoinNewsDaily.com is an online Crypto Coin News Website that aims to provide latest trendy news from market and around the world.

Related Posts

IoTeX’s MachineFi Lab challenges Big Tech by democratizing IoT to benefit users and businesses
Business

IoTeX’s MachineFi Lab challenges Big Tech by democratizing IoT to benefit users and businesses

Juli 26, 2022
ygg sea surpasses 10,000 scholarships in just six months of launch
Alt Coin

YGG SEA Surpasses 10,000 Scholarships in Just Six Months of Launch

Mai 6, 2022
5 projects enabling smart contract development on bitcoin
Alt Coin

5 Projects Enabling Smart Contract Development on Bitcoin

April 29, 2022
cross chain services play a crucial role in facilitating continued adoption of defi applications
Alt Coin

Cross-Chain Services Play a Crucial Role in Facilitating Continued Adoption of DeFi Applications

April 26, 2022
justin sun launches usdd, integrating the blockchain world and the real world with the decentralized stablecoin
Alt Coin

Justin Sun Launches USDD, Integrating the Blockchain World and the Real World with the Decentralized Stablecoin

April 25, 2022
what are wrapped tokens?
Bitcoin

What Are Wrapped Tokens?

April 23, 2022
Load More
Next Post
Privacy Laws Are Only as Effective as the Companies Implementing Them

Privacy Laws Are Only as Effective as the Companies Implementing Them

Kategorien

  • Alt Coin
  • Bitcoin
  • Business
  • Ethereum
  • ICO
  • Litecoin
  • Mining
  • NFT
  • Ripple
  • Tech
  • Trading

What New here?

  • 6 Questions for Rene Reinsberg of Celo – Cointelegraph Magazine
  • Judge denies SEC motion to keep Hinman docs secret in Ripple case
  • The ultimate guide to Miami – Cointelegraph Magazine
  • About Us
  • Contact Us
  • Privacy & Policy

© 2018-2021 CoinNewsDaily.com by CoinNewsDaily Inc. Crafted with Love by iFtiDev

Please enter CoinMarketCap Free Api Key to get this plugin works.
✕
No Result
View All Result
  • Home
  • Coin Market Cap
  • Bitcoin
  • Ethereum
  • Ripple
  • Litecoin
  • Alt Coin
  • Business
  • Trading
  • Mining

© 2018-2021 CoinNewsDaily.com by CoinNewsDaily Inc. Crafted with Love by iFtiDev