With the rate at which the DeFi space is growing, its collective user base will soon be at par with some of the biggest banks in the US. This is according to a recent report released by Grayscale Investments, the digital assets investment consultancy company.
The report written by David Grider, the Head of Research was done in conjunction with Matt Maximo, Research Analyst at Grayscale. It shows that the rate of growth in the DeFi space saw the market capitalization in the space grow to $90 billion in just 2 years. This represents 2.6% of the S & P 500 financial services sector valued at $4.2 trillion.
$170 Billion Locked in DeFi
The growth in the sector has resulted in $170 billion locked in DeFi platforms. This is equivalent to 1% of all the deposits in commercial banks in the US. According to the Grayscale report, the DeFi platforms have investments locked in them that collectively value them as the 18th largest US bank.
The Grayscale researchers predict that DeFi is poised to generate $5 billion in annual revenue. This may contrast with the $5.5 trillion generated by the global financial system that services $300 trillion in global financial assets.
With total value locked exceeding $170 billion, the #DeFi community would collectively represent the 18th largest U.S. bank. Yet, perceptions of this asset category are still nebulous for many investors: https://t.co/tA2PlfFZug pic.twitter.com/z8vu0xSloS
— Grayscale (@Grayscale) April 29, 2022
The Risks To The DeFi Space
The report stated that some of the risks that the emerging cloud economy faces is the absence of regulatory oversight. It highlighted that these platforms face the hurdle of possible sanctions considering that they operate across international borders without recourse at most times to regulatory oversight of the countries involved.
Another present risk in the sector is that of exploits that could compromise the code base of the platforms, effectively causing investors losses if the platform that they invested in is hacked.
The report also pointed out that investment in the DeFi space is fraught with risks associated with the volatility of digital assets. It also raised the issues of unproven governance models and tokenomics associated with some of DeFi tokens.
With the possibility that a US investor could conveniently invest $20,000 in locked tokens, the post made it clear that there are great prospects for growth in the DeFi space.
Third Wave in The Growth of Cloud Technology
The release made it clear that DeFi represents the third wave of the growth seen in the crypto cloud revolution. It highlighted that this will be to the banking industry what the internet became for the information sphere. It stated that:
“Crypto creates an internet owned by its users and DeFi empowers those users to own a piece of that financial ecosystem.”
It stated that the objective of the DeFi space is to give more banking access to the underbanked and unbanked irrespective of their locations.
