Internet Money #17

HOLY MOLY DeFI 😳

👋🏼 Hi, I’m Cedric. I study crypto adoption @ 1000x.report

Every sometimes, I share the most important happenings in Internet Money.

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What’s happening in DeFi is unprecedented and will likely only get weirder.

😳 Today, over $4B USD of value is locked up in DeFi on Ethereum.

  • Will this value stick? This is the question I’ve been asking industry insiders behind the crypto curtain.

  • Universally, the answer I’m getting back is, “No. We expect 80% to 90% of DeFi value locked up to (temporarily) go away as VC sponsored incentives go away. But the timing is hard, maybe impossible.”

What about Bitcoin?

  • A good friend who first introduced me to Bitcoin in late 2009 reminded me that exponential increases in value tend to be followed by severe corrections.

  • Are we due for a correction? Seems likey, but who knows by how much or when it might happen 🤷🏻‍♂️?

  • 😳 Bitcoin locked in Ethereum DeFi (WBTC)

What about weird new things?

  • Yearn.Finance (YFI) has been the biggest black swan to emerge out of the recent DeFi madness.

  • YFI can be most simply described as a DeFi robo-advisor, with no venture backing.

  • This little project, run by a cowboy / mad scientist, and a hardcore community of true believers, has created mountains of value in just a few short weeks. Emerging from nowhere and literally shaping the value of major DeFi projects.

  • See chart below, money goes into YFI and is rerouted into projects like Curve and sometimes Aave, literally shaping the value locked in those projects 😳

    How did this happen?

  • It’s hard to know for sure, but it seems like we’re in an unexpected situation caused by a combination of VC sponsored incentives, mania, and arbitrage.

    What’s next?

  • Again, hard to know for sure, but the consensus is the value locked in DeFi will likely shrink in the short term (1-3 years) and likely explode in the long-term.

  • Will DeFi continue on Ethereum? Again, hard to know, the smartest people in the space are mixed on the Ethereums ability to serve this market. Some say it’s too slow, others say it will win because it has the network effects. We’ll see.

The only thing we know for certain is that DeFi has grown past Leveraged Long Positions on Ethereum, Stable Coins, and slow DEXs. New categories are emerging in Lending and Robo Advising.

DeFi may (or may not) crash in the short term, but its future is bright, even if it won’t necessarily live entirely on Ethereum.

Polite disagreement encouraged. Hit me up on Twitter @CedricMakes.