Silicon Valley will create an Ethereum & DeFi bubble: Analyst ๐จ This article is 4 years old...
Silicon Valley will create an Ethereum & DeFi bubble: Analyst
2 min read
Updated: Oct. 21, 2020 at 12:47 pm UTC
Ethereum’s decentralized finance (DeFi) space has seen exponential growth over the past few months.
Nothing shows this as well as the total value locked in DeFi contracts, which has risen from around $500 million at the start of the year to $11.5 billion at the local highs. That’s a growth of over 2,000 percent in under a year, which is faster than the price of Bitcoin grew in 2020.
While this is rapid growth, this hasn’t been classified as a blow-off bubble despite skeptics.
Behind the growth in DeFi are fundamental trends of development and education that is driving mass adoption within the crypto-asset space. DeFi, a space used by only a few hundred active users at the start of the year, now has tens of thousands of active users that regularly complete financial processes on Ethereum.
Unfortunately,ย DeFi may soon turn into a full-fledged bubble, a crypto analyst recently postulated in reference to the institutional money starting to influence this nascent space.
Silicon Valley is starting to take notice of DeFi
Beyond a select set of investments by Andreessen Horowitz and Sequoia, Silicon Valley investors and innovators have largely kept out of the DeFi space. Even many in the crypto space, early adopters of Bitcoin and such, did not see much value in DeFi just months ago.
At the core of DeFi are overcollateralized loans, slow transaction times, and other inefficiencies that may give many little reasons to give this space any attention.
But, this has begun to change as the innovators have revived the space with a flurry of new innovation.
Silicon Valley, as evidenced by movements on Twitter, podcasts, and capital flows, is starting to take notice of DeFi.
For one, legendary venture investor Naval Ravikant recently talked about DeFi on a podcast with Tim Ferris. As reported by CryptoSlate, he said:
โTheyโre building a decentralized Wall Street, they call it DeFi, D-E-F-I, for decentralized finance. But I actually think itโs more like DEFY as, just defy the government, DEFY. And so I think, weโre seeing a whole new casino thatโs better than Wall Street.โ
Other notable names in venture investing are also taking a look at the space.
And earlier this year, Andreessen Horowitz launched a massive crypto-focused fund that intends on investing heavily in DeFi. This fund’s partners noted that DeFi aligns with the free, innovative, and decentralized tenets of the Internet.
Crypto-asset analyst Qiao Wang fears that this interest in DeFi may create a bubble in the years ahead as money is funneled into this space at an amazing speed:
“It seems that Silicon Valley finally discovered DeFi. Relatively to crypto natives, they are characteristically late. They were late with BTC, ETH, and this time DeFi. But if history is any indication, theyโll hype it up and create a huge bubble out of it in the coming years.”
Even still, he said in the past that decentralized finance is the best investment opportunity since Bitcoin and Ethereum.
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a16z
Andreessen Horowitz (known as “a16z”) is a venture capital firm in Silicon Valley specializing in investing in seed, start-ups, early, mid-stage, growth, and late stage.