The Federal Reserve Bank of St. Louis, a city in the United States, has looked into the expansion of Decentralized Finance (DeFi) and published a report. The report clearly highlights the role of Ethereum (ETH).
The study was released on May 2 and is written by Dr. Fabian Schär. Taking a close look at DeFi’s world, he concluded that if security concerns and risks can be addressed, it could lead to massive shifts in the financial industry.
“Defi uses so-called ‘smart contracts’ to create protocols that take over existing services in a more open and transparent way”. Thus wrote Fabian Schär. He was also pleased with the accessibility, efficiency and the possibility of composing yourself.
“DeFi can lead to a paradigm shift in the financial industry and potentially contribute to a more robust, open and transparent financial infrastructure.”
This is in line with the fact that DeFi has been performing well in recent times.
DeFi has grown phenomenally by over 700% in the past year. This is about the total value associated with the ecosystem. At the time of writing, that value is an all-time high of $ 134 billion across several blockchains, according to DeFiLlama data.
According to Schär, the backbone of the DeFi ecosystem consists of the aforementioned smart contracts. The majority of these smart contracts run on Ethereum. The report lists several popular DeFi platforms, but Ethereum is by far the most popular and largest.
ETH is also used as collateral for a lot of DeFi protocols and 9% of the total supply, or about 10.5 million ether, would be locked, according to Defipulse.
Ethereum has unleashed a wave of innovation built entirely on blockchain technology, said Dr. Schär, who works at the University of Basel. The growth of digital assets like ETH and the potential of DeFi means that the industry can expect much bigger things, he says:
“The spectacular growth of these assets along with some truly innovative protocols suggests that DeFi may become relevant in a much broader context and has aroused the interest of policymakers, researchers and financial institutions.”