The amount of ETH locked by open finance, DeFi, dApps now exceeds the $1 billion mark according to streams from DeFi Pulse, a site that tracks the performance of financial dApps. A milestone for the emerging trustless finance sub-sector and most importantly Ethereum, from where most DeFi dapps are launched from.
DeFi and ETH Price: The Relationship
Lending rates in DeFi dapps remain high. Part of this is because ETH, which is the collateral required for borrowing loans, is an asset whose prices fluctuate.
When prices rise, instead of simply holding, investors can use the asset to earn above market rates. This could explain the swelling of the total amount of ETH locked in DeFi.
The success of the Beacon Chain mainnet, the foundation of ETH 2.0, is vital for the network and ETH prices since most apps prefer the network despite its scalability challenges.
Is Defi Disrupting Traditional Finance?
DeFi apps seek to disrupt the traditional finance system punctuated by centralized entities known for reaping big profits by charging exorbitant rates for borrowers.
As the tables turn and blockchain becomes mainstream, holders of digital assets like ETH or Tron, for instance, would lend their assets and even borrow funds for stablecoins pegged to the USD or any other reserve currency without the participation of the middleman.
The absence of the middleman gives DeFi dApps an edge and an advantage over traditional setups. Notably, that smart contracts drive processes and eliminate errors could be one factor that contribute to the expansion of the interesting financial application.
Luke has had a long interest in financial technology, especially cryptocurrency and blockchain. With a Bachelors degree in Journalism and Media, Luke is dedicating his writing skills for the digital currency sphere.He can be contacted at firstname.lastname@example.org