Ethereum has sparked a flood of financial innovation.
The Federal Reserve Bank of St. Louis published a paper that looked into the growth of decentralized finance and Ethereum’s role in it.
Dr. Fabian Schär’s research, published on May 2, took a deep dive into the world of DeFi, implying that if security concerns and risks can be addressed, it may lead to significant changes in the financial industry.
“DeFi uses smart contracts to create protocols that replicate existing financial services in a more open, interoperable, and transparent way,” Dr. Fabian Schär also praised its efficiency, accessibility, and composability in his letter.
“DeFi may lead to a paradigm shift in the financial industry and potentially contribute toward a more robust, open, and transparent financial infrastructure.”
DeFi growth has been phenomenal in the last year, with a 700% increase in total value locked across the ecosystem. According to DefiLlama, at the time of writing, that figure has reached an all-time high of around $134 billion across various blockchain.
Dr. Schär explained that smart contracts, the majority of which run on Ethereum, are the foundation of the entire DeFi ecosystem. The report includes a list of popular DeFi-related tokens, but emphasizes that the vast majority of tokens are issued on the Ethereum network.
According to Defipulse, 10.5 million ETH, or 9 percent of the total supply, is locked up as collateral for a wide range of DeFi protocols.
According to Schär, a professor of Distributed Ledger Technology at the University of Basel in Switzerland, Ethereum has unleashed a wave of blockchain-based innovation.
He went on to say that the rise of digital assets like ETH, as well as the potential for DeFi, indicate that the sector is on the rise:
“The spectacular growth of these assets alongside some truly innovative protocols suggests that DeFi may become relevant in a much broader context and has sparked interest among policymakers, researchers, and financial institutions.”
According to the ConsenSys Q1 DeFi report, the number of Ethereum addresses interacting with DeFi protocols has reached an all-time high of 1.75 million, a tenfold increase since the beginning of 2020.
The study adds to Ethereum’s bullish momentum, which has seen it outperform Bitcoin this year, propelling the asset to an all-time high of just over $3,500 on May 4.