Will Ethereum Continue to Dominate DeFi?

October 14, 2020

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Ethereum has benefited from the rise in DeFi activity, but it might only be a temporary boost, according to Finder’s Cryptocurrency Predictions Report.

The majority of Finder’s panel (64%) say that DeFi applications will grow steadily in value locked and user count over the next 12 months. However, less than a third of panelists (29%) think that Ethereum will continue to dominate the DeFi landscape over the same time frame.

So if Ethereum isn’t dominating the ecosystem, what does the future look like? We could be headed to a model where DeFi operates on more than one blockchain, with 43% of the panel saying that there will be a few (less than five) popular and widely used DeFi ecosystems. A further 21% expect to see a model where there are even more (more than five) DeFi ecosystems.

Dr. Iwa Salami of the University of East London believes that there will be a few popular and widely used ecosystems, but notes that Ethereum might not be out of the picture entirely.

“I think there would be a few widely-used DeFi ecosystems – possibly with Ethereum still dominating. There may also be the development of interoperability and interactions between DeFi ecosystems and, possibly, the migration of assets across DeFi ecosystems,” she said.

Ethereum PriceOn average, the panel predicts that ETH will be valued at $513 by the end of the year. Most of the panel says that this is dependent on how long Ethereum can benefit from the DeFi boom, as well as anticipated appreciation after the ETH 2.0 launch.

CEO and co-founder of Anatha.io Edward Hickman gives a forecast on par with the panel average, giving a range of $400-$600. However, unlike many who attribute the ETH price appreciation to DeFi and ETH 2.0, Hickman believes that ETH has Bitcoin to thank.

“ETH still tends to track the same stock-to-flow model as Bitcoin, due to the fact that a healthy portion of its volume still happens via ETH/BTC trading pairs. Meaning BTC price movement also impacts ETH a great deal. So as long as BTC is still the market peg, we should see price movement across the industry that follows BTC’s general trend,” he said.

By the end of 2025, panelists expect the price of ETH to be up to $2,075 on average. LMAX Group currency strategist Joel Kruger, who forecasts a $2,000 end-of-2025 ETH price, believes that the economic outlook for digital assets is bright, but that ETH has a lot to compete with.

“Ethereum is at the front of all this when it comes to the innovation we’re seeing in the decentralized technology space. Still, there is likely to be more competition from other blockchains, something that will prevent ETH from growing at the same rate as Bitcoin,” he said.

Almost half of the panel believes that now is the time to buy ETH. A few panelists – including Thomson Reuters technologist and futurist Joseph Raczynski – attribute the buy signal to ETH gaining traction from the growth of DeFi.

“Though the upgrade is still occurring, the number of DeFi projects running on Ethereum is unreal. The network is being pushed hard and some cracks are visible, but yet it’s the place to run the best new projects still,” Raczynski said.

DeFi ReturnsDespite the growth in DeFi applications projected for the next 12 months, the huge returns on yield farming could collapse within the next six months.

Thirty seven percent of panelists say that huge yields will last for less than six months, and 7% say that yields will collapse any day now. Wave financial associate Andrew Ballinger warned that 100% per annum returns are based on a short-time window.

“As more players enter the space, inefficiencies will be arbitraged away and yields will consolidate. These 100% per annum returns are based on a short time window and cannot be expected to hold across longer time frames. That being said, I expect DeFi yields to stay compelling, and am eager to watch the space develop further,” he said.

TradeStation Crypto head of product James Putra said that a liquidity crunch would bring an end to strong yields.

“There are a lot of people unfamiliar with margin currently using leverage to drive up returns. Most of the projects are barely tested before being released into the wild. Watch for market structure events that will trigger a fast liquidation of open positions. People are not sure exactly what they own,” he said.

However, CEO of Alpha5 Vishal Shah thinks it’s impossible to predict how long huge DeFi yield farming returns will last.

“As more enter the space to hunt the same yield, yields naturally collapse… and in some instances, even go negative when you adjust for costs of transaction and starting exposure. However, the failure of one is often supplanted by another hype. The continuity of the hype cycle will just be a function of greed. But there are very few platforms that appear to promise longevity,” he said.

For more, you can find the full report here.

Patricia Cruz is a public relations professional at Finder. She has a Bachelor degree in Organizational Communication from the University of the Philippines Manila.

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