Dominance of just two applications in DeFi industry raises some questions
DeFi, or decentralized finance, is a blockchain-based alternative to traditional financial solutions, including banking, exchanges, funding, and more. However, State DeFi raises a lot of questions about the future of the industry right now.
Lack of competition
According to DefiLIama’s data, the difference between the second and the third biggest protocol on the network amounts to more than $2 billion; between the first and the third place — almost $3 billion.
The first place is held by the largest decentralized stablecoin, The DAO. However, the TVL of the protocol could not reach such a high number due to the decentralized stablecoin alone. More than 400 applications and services integrate the decentralized stablecoin, which is the primary reason behind the massive $6.63 billion TVL.
The second place on the DeFi market is held by Lido Finance, a protocol we have covered numerous times. Lido Finance allows users to increase the liquidity of their staked assets by exchanging cryptocurrencies like ETH to stETH tokens. Since the coin lock period for Ethereum remains undisclosed, investors choose Lido to have the ability to manage their ETH while it remains in staking.
Main Downsides of DeFi
Despite the dominance of the above projects in the market, it is difficult to call them centralized or dangerous for the stability of the decentralized finance industry. However, the lack of competitors for projects such as Lido Finance poses some risks for retail users.
Previously, industry experts expressed their concerns over Lido’s token issuance scheme. Practically, Lido holds real Ethereum in exchange for self-issued tokens that have been constantly losing their peg to ETH. In the case of a spike in downward volatility, users might face issues with stETH’s liquidity and lose a lot of the exchange value.
