“Total ETH locked in DeFi (currently 2.311M) is approaching its all-time high of 2.332M, levels last seen in mid-April 2019. At the moment, ~2.13% of all ETH is locked in DeFi.”
DeFi in Ethereum refers to the usage of ETH to process financial services that often require third-party service providers, such as lending.
Through the usage of smart contracts, DeFi allows users to borrow and lend money in a peer-to-peer manner with ETH as collateral, maintaining a decentralized financial ecosystem.
DeFi reflects Ethereum growth, but more data is needed
Investors like Ryan Sean Adams, founder at Mythos Capital, said that public blockchain data shows a significant amount of Ethereum issuance is being consumed by DeFi, which suggests that the demand for DeFi is increasing at a rapid rate.
Since Ethereum is used as collateral in most DeFi-related services, the growth of the DeFi market directly reflects the total usage of ETH, leading to an overall increase in user activity.
“Is more ETH getting locked in money protocols than being issued? Current ETH issuance: 4.6% annual. Since Jan 2018, ETH supply grew 12.15% ETH. locked in DeFi currently consumes half that amount. DeFi demand is sucking up new ETH issuance.”
Adams followed up that:
“Is DAI used in money protocols? Yes. Increasingly so. Over 22m DAI now locked in money protocols. That’s 26% of all DAI supply Pretty much none of this existed 18 months ago This is good for ETH since DAI demand is ETH demand.”
However, as many investors like to put ETH as collateral often to acquire more ETH as market prices drop, the consumption of ETH by DeFi-related services tends to increase amidst a market downturn, along with other factors.
The ETH price dropped by 16 percent so far into the month, from over $190 to $162.
Hence, to more accurately evaluate the trend of the growth of the Ethereum ecosystem, it is crucial to consider other types of data including transaction volume, address growth, and network utilization.
Most charts point towards rising growth trend
Based on data from Etherscan, the number of unique Ethereum addresses has increased from 54 million to 78 million since January 2019 and daily transaction volume has almost doubled in the same time frame.
The daily transaction volume of ETH increases when DeFi-related services and decentralized applications (DApps) record rising user activity, as ETH is used as gas to process information.
Currently, reports indicate that developers are working through some obstacles that may emerge prior to and subsequent to the launch of Ethereum 2.0, a highly anticipated update that would increase the efficiency of the blockchain in processing information, benefiting areas like DeFi.