The total value of cryptoassets blocked in DeFi applications reached $ 3 billion, an increase of $ 1 billion in two weeks. One of the reasons for the growth is the launch of the Compound protocol COMP token.
According to DeFi Pulse, it took 2.5 years for the amount of blocked assets in Decentralized Finance (DeFi) apps to surpass $ 1 billion. Soon after, it dropped to $ 600 million and then rose again. After a sudden increase, it crossed the $ 2 billion mark for the first time in early July.
Now, two weeks later, another $ 1 billion is locked in the DeFi ecosystem and the industry shows no signs of slowing down. DeFi's current explosive growth began after the second-largest protocol, DeFi Compound, began distributing its COMP token to govern the protocol.
The token has skyrocketed in value and has generated a lot of interest in the industry. The launch of COMP on June 15 sparked a drive by industry players to increase their revenues. This phenomenon is called "yield farming".
DeFi Apps reward those who provide liquidity to function. The more liquidity someone provides, the more tokens they receive. Yield farming is the practice of maximizing these rewards using high leverage solutions: the greater the risk, the higher the reward.
The problem is that incentive schemes like these bring huge amounts of money to the DeFi industry. The explosive growth worries market participants, who fear that it could lead to the collapse of the industry. Blockchain Capital senior lawyer Aleks Larsen wrote that such schemes carry risks:
“One can imagine a situation where an external protocol creates incentives that, without any action of its own, can lead to dangerous behavior in another protocol and, ultimately, provoke cascading liquidations and losses for users. However, the process of combat testing with real money will ultimately lead to the strengthening of systems with well-understood risks. "
As a reminder, as recently reported by its subsidiary ConsenSys Codefi, the activity of users of DeFi applications continues to grow, with the same users most often interacting with the products.