Weiss Crypto: DeFi may be exciting but it may soon see a correction to normality, so ETH price has to help itself
Thankfully, ETH price was not affected too much by Bitcoin’s collapse last night. Speaking of which, many people will think that the cause comes from the DeFi catalyst, but things are not so simple. Because Ethereum DeFi will eventually see a correction and return to more reasonable levels.
ETH/USD 4 hours chart | Source: Tradingview
DeFi may be exciting, but it may soon see a correction to normality, how about ETH price?
According to cryptocurrency analyst Tahar Zafar, with the following table illustrating these trends, it shows that since June 18, Ethereum-based tokens such as Aave’s LEND, Kyber Network’s KNC and Bancor’s BNT, have outstripped Bitcoin.
Even Ethereum, often moving directly in parallel with BTC, has been slightly ahead of the market leader.
However, according to research firm Weiss Crypto, Ethereum DeFi will eventually see the correction and return to a more reasonable level. DeFi-related tokens have risen by tens and hundreds of percent in recent months, as stated above. This has coincided with the exponential increase in the economic firepower of the DeFi ecosystem.
DeFiPulse reports that the value of locked cryptocurrencies in DeFi applications has reached $ 1.6 billion. This is three times higher than in March and 60% higher than this figure 10 days ago.
According to Weiss Crypto, DeFi may be exciting, but it may soon see a rule adjustment:
#DeFi is one of the most exciting things going on in the #crypto right now, but the idea that this sector will decouple from the rest of the market is ludicrous. Eventually, the mania will end, and DeFi will trade in line with the rest of the market.
— Weiss Crypto Ratings (@WeissCrypto) June 24, 2020
Supporting Weiss Crypto’s market adjustment expectations are the hurdles that DeFi is facing. Despite the moves to increase the amount of gas that each Ethereum block can have, transaction fees are still relatively high. It can cost tens of dollars to send a DeFi transaction.
These high fees prevent smaller holders from participating in many parts of the Ethereum ecosystem. This will reduce the rate at which the DeFi tokens can increase.
Besides, DeFi suffers from to-medium-term “latency” issues.
Even DeFi is unlikely to succeed with Ethereum in its current state:
“You just can’t build global scale trading systems for lots of users on POW chains. It just doesn’t work. High latency –> all kinds of negative second-order effects. So I think for now we are near a plateau for DeFi – measured in ETH terms (not USD) – until the core latency problems are solved.”
This was made Holiday about Ethereum’s block time of ~ 13 to 14 seconds, which means that at the updated, a trader can transact with a decentralized exchange in that period.
For most consumers, this is fine. But for power users trading large sums at money, that latency could have a significant impact on their profits, thus deterring DeFi adoption.
0/ I’ve been thinking a lot about DeFi lately
What’s working, what’s not, where it’s going, and how it can get there
DeFi is going to eat CeFi, but it is facing some real challenges
My latest post:https://t.co/dXZD8fKBVL
— Kyle Samani (@KyleSamani) June 4, 2020
Also harming DeFi adoption at the moment and in the short term are relatively high Ethereum transaction fees. Data site ETH Gas Station shows that the cost to send transactions on the blockchain has effectively tripled over the past month, since the start of May. Regular transactions of ETH may be cheap, much cheaper than Bitcoin, but DeFi transactions can start costing dollars for specific functions, limiting adoption.
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