The TradFi-DeFi Tug of War: Is a DeFi-Only Utopia Possible?
Will Hamilton is Head of Trading & Research at TCM Capital, a wholly-owned subsidiary of Token Capital Management & Technologies Pte Ltd.
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Decentralized finance or DeFi is already level pegging with global multinational financial companies in terms of market capitalization and daily volumes. The originally experimental, open-source software for automated peer-to-peer finance has burgeoned into a significant global industry in just one year.
New DeFi entrants were initially dwarfed by the gigantic incumbents of the industry — the centralized, institutional, corporate providers of financial products and services. But what started as a David vs. Goliath contest has become an interesting tussle of new against traditional financial technology.
Similarly to a traditional asset management business, DeFi protocols, by and large, have value prescribed to them based on their AUM [Assets Under Management]. In the world of DeFi, this is known as Total Value Locked (TVL) — the amount of capital deposited by users to earn a yield on their tokens. Currently, the DeFi sector has an estimated TVL in excess of [USD] 165 billion in lending, exchanging and liquidity pools. Major DeFi protocols include AAVE, Curve Finance, Compound Finance as well as Uniswap and Sushiswap.
If the TVL for decentralized finance tokens, apps, and protocols continue to appreciate as rapidly as it has — alongside developers improving the tooling for scale and mainstream use — DeFi looks to be the next exponential leap forward in global finance, not unlike the rise of the Internet, smartphones, and cloud computing.
One of the main reasons for DeFi’s exponential rise is its flexibility and security. The sector harnesses the blockchain as a single source of
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