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‘DeFi may lead to a paradigm shift,’ says Federal Reserve Bank document

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An article published by the Federal Reserve Bank of St Louis looked at the expansion of decentralized finance and Ethereum’s role in it.

The research, written by Dr Fabian Schär and published on May 2, dived deep into the world of DeFi, hinting that if security issues and risks can be addressed, it could lead to huge changes in the industry. financial.

“DeFi uses smart contracts to create protocols that replicate existing financial services in a more open, interoperable and transparent way,” wrote Dr Fabian Schär, also praising its efficiency, accessibility and composability.

“DeFi can lead to a paradigm shift in the financial sector and potentially contribute to a more robust, open and transparent financial infrastructure.”

DeFi’s growth over the past year has been monumental, with a 700% increase in total value locked in across the ecosystem. At the time of writing, that figure stands at an all-time high of around $ 134 billion on various blockchains according to DefiLlama.

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Dr Schär explained that the backbone of the entire DeFi ecosystem is smart contracts, the majority of which run on Ethereum. The report lists a number of popular DeFi-related tokens, but points out that the vast majority of tokens are issued on the Ethereum network.

ETH is also used as collateral for a large number of DeFi protocols and 10.5 million ETH, or 9% of the total supply, is blocked according to Defipulse.

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Schär, professor of distributed ledger technology at the University of Basel in Switzerland, said Ethereum has sparked a wave of innovation based on blockchain technology.

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He added that the growth of digital assets such as ETH and the potential of DeFi means the industry is destined for bigger things:

“The dramatic growth of these assets along with some truly innovative protocols suggest that DeFi may become relevant in a much larger context and has attracted the interest of policymakers, researchers and financial institutions.”

According to the ConsenSys Q1 DeFi report, the number of Ethereum addresses interacting with DeFi protocols is at an all-time high of 1.75 million, after growing 10X since early 2020.

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The research adds to Ethereum’s bullish momentum that saw it outperform Bitcoin this year and propel the asset to an all-time high of just over $ 3,500 on May 4.

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