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ETH · 4w

It’s do or die for DeFi: How crypto’s latest craze can save itself

Don’t be fooled by total value locked (TVL): DeFi is on life support.

Still, by almost every measure, DeFi appears to be skyrocketing. TVL has increased from just over $550 million a year ago to $11.2 billion at the time of this writing, according to DeFi Pulse. The leading DEX’s fortunes have swung wildly, propelling Uniswap suddenly to star status, while its SushiSwap fork went from zero to $1.46 billion TVL in days.

The headlines covering DeFi’s rise are breathless. The podcasts are perpetual. The excitement is visceral. However, a big question hovers over it all: what legitimate value is DeFi delivering today?

At its core, DeFi is the promise of Bitcoin scaled exponentially. The first decentralized cryptocurrency sought to disrupt currency as we know it. DeFi’s founders aimed to do the same for traditional trading, lending, derivatives and payments, replacing a closed, centralized system with one built on cryptography, blockchain, and smart contracts. With DeFi, banks are no longer the gatekeeper for most financial products, bypassed by an open and permissionless architecture that encourages collaboration.

The result is multiple financial improvements, including:

Financial products with unprecedented interoperability — Credit/lending services, DEXs, payments, custody, and stablecoins can work together in exciting new ways. Code, not corporations — DeFi removes the intermediaries and replaces them with smart contracts, reducing costs and friction. Ease of access — If cryptocurrency “banks the unbanked,” then DeFi at its best “bankers the unbanked,” empowering anyone with Internet access (and an appetite for risk) to execute complex financial strategies.

Look past the giddy numbers of 2020’s DeFi explosion, however, and the practical purpose of DeFi today fades away. How many people are benefiting from the meteoric rise in TVL, and how is that value positively impacting the broader crypto ecosystem? That’s when DeFi’s nefa...

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