Is DeFi an ICO Bubble Waiting to Burst, or the Real Deal?


While 2020 has been a massively disruptive year for the entire planet and many of its markets, it has also been a year that DeFi has really come to the fore. Decentralized Finance is a tool that looks to utilize the power of blockchain to provide financial services without many of the hindrances often associated with it traditionally. 

This concept is a promising one, and one that has the power to really disrupt the financial services sector. But, just like ICOs were seen as a disruptive force for the Venture Capitalist sector, there are warnings to take heed. 

DeFi has buckets of potential, but there are a few instances that have already happened that have pointed to the dangers of placing huge sums of money into this new and quite untested system. However, the system is growing, and perhaps it will reach a point where it can grow to a huge possibility.

For that to become a reality there will however have to be a lot of work done, and the hope is that DeFi does not go down the road of the ICO and expand quicker than is sustainable. Yet, the money that has flooded into this space could lead to dangers, especially with its vulnerabilities still being figured out. 

DeFi on the rise

Some of the DeFi projects themselves, rather than just the system, are hinting at ICO mania as the value of these projects and their associated tokens skyrocket on what currently looks like speculation more than proof of concept and execution. 

One such example that points towards this is Compound Governance Token (COMP). This token rose from $64 to $352 in just three days. Part of this had to do with its own launch on the major Coinbase Pro platform — but herein lies another red flag.

DeFi Platforms are not only capturing the attention of those who see potential, they are being bought up by speculators, and these speculators are being aided by major exchanges. There are a number of other cases where the DeFi projects being put to market are being snapped up, but clearly much more for their potential as a speculative investment than their true application — as was the case in the ICO craze. 

The commonalities between ICOs and the DeFi have not gone unnoticed.

The founder and CEO of the Waves Association, tweeted this earlier in the week and added. “Future inevitable volatility and price crashes can severely harm DeFi mass adoption perspectives, which would be very bright otherwise.”

A new mania

The crypto space has become quite prone to new and exciting opportunities to try and make money which is spurred by mania of mostly a speculative nature. ICOs are the classic example, but even their variants, like STOs, IEOs etc, all had their day in the sun before falling away. DeFi faces the same stern test and if it does not pass, it could be another wasted chance. 

With mania comes bubbles and DeFi is certainly on its way to growing and expanding to a point where it may pop — or it may just keep on growing. Blockchain, crypto and the applications of the two are far more mature, far more legitimized and normalized, and may be finally ready to embrace a use case that has the potential to be a disruptive force as was the hope. 

The amount of money locked in the DeFi space has increased by about 80 percent in just 30 days, but it has been constantly flowing and expanding that figure with more projects, more interest, and a bigger buy in. Some of it indeed will be speculation, but a lot of it will be realization of potential.

The crypto market now appeals to far more than just individuals looking to make huge returns on digital investments, there are people and companies looking to the future of tech and finance and seeing that there is a chance to be in early and at the ground level. 

Finding the killer application

It may well be that as crypto and blockchain continue to search for its killer appreciation that it may have stumbled onto it with DeFi. Certainly, this application has the potential to be a game changer, but its pure potential alone will not be enough. 

It has to prove its worth and stave off those who are in it for only personal gain, but its need and necessity seems stronger than that of the ICO space and it could well be powerful enough to blow past the bubble stage and into the real world application stage. 

Darryn Pollock
Darryn has been interested in the blockchain and cryptocurrency space since he heard about Bitcoin in 2015. He then decided to use his journalism degree to report on this fascinating fintech space in 2016, and has not looked back since.

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