Of the approximately 4,000 Dapps deployed on public blockchains, 80% are Ethereum. DeFi overtook games, which were the main Dapp category until 2019, in 2020, becoming the top category. DeFi's TVL increased from $10 billion at the end of the year to $40 billion in just a month and a half, equivalent to the deposit volume of a mid-sized regional bank in Japan.
The expansion of DeFi is driven by the growth of DEXs such as Uniswap and lending services such as Compound. Yield farming, where borrowed crypto assets are lent out and interest is earned through multiple DeFi platforms, is becoming popular. Liquidity mining involves the free distribution of governance tokens, which allow investors to generate capital gains.
Scalability issues include soaring gas costs due to the auction system, where high fees are processed first. Since no KYC is required for transactions, it provides privacy to criminals and can be exploited for money laundering. There are also many other issues, such as the misuse of administrator keys, rampant scams, and a chain of bugs due to composability.
Securities laws regulate misconduct by intermediaries, so a completely new legal system is needed to regulate DeFi. DeFi is rapidly expanding, and governments around the world are concerned that decentralized crypto assets will have an impact on the real economy. In order to maintain centralized functions, governments around the world are rushing to develop digital currencies (CBDCs).
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