Locked ETH hits a new high of 3.1 million. Is DeFi too dangerous?

The application of decentralized finance (DeFi) on the Ethereum blockchain continues to grow and is very popular. The number of locked Ethereum has almost doubled in the past few months. This number has reached a historical high of 3.1 million ETH, and the DeFi application lock-in value has reached 798 million US dollars (including other currencies in addition to ETH).


By comparison, the number of Ethereum locked in last November was only 2.4 million ETH ($ 439 million).

At the same time as the number of Ethereum is increasing, the value being locked up is also growing at a faster rate. However, this is largely due to the surge in Ethereum prices in recent days, as the cryptocurrency market has generally recovered.


(The surge in the price of Ethereum has pushed up the value of ETH locked in DeFi applications, image source: DeFi Pulse )

Cryptocurrency analyst Mati Greenspan said:

"It seems that during the small fluctuations in the cryptocurrency yesterday, the allocation of funds in this new area has increased significantly. It is speculated that traders are using this new option to increase funds to take advantage of the huge market volatility.

The top three DeFi projects have locked in more than $ 700 million, and the decentralized lending application MakerDAO is still in a leading position with $ 452.4 million, up from $ 335.4 million in November.

Last year, Compound, its closest competitor, the financial application open source agreement Compound, has lost some market share and dropped to third place at a price of $ 104.5 million.

In second place is Synthetix, a crypto-synthetic asset platform that increased the lock-up period of ETH from $ 99.4 million to $ 148.8 million.

Why is this good?

For various purposes, users lock ETH in DeFi applications. Taking Maker as an example, the platform uses currencies such as ETH as collateral to obtain DAI loans. DAI is an algorithmic stablecoin pegged to the US dollar.

In theory, if the ETH in circulation decreases, it may push up demand and put upward pressure on the price of ETH. This is why Ethereum supporters believe that it is good to lock the coin on the DeFi platform. The rapid development of such applications may also mean that the network has a strong application prospect in the real world.

However, Greenspan warned:

"For anyone considering entering this field, as long as they know that lending money to the Brazilian government is risky, lending money to crypto startups is even more dangerous. Although I'm glad to see this new market Progress, but keep in mind that when things really get worse, without the Federal Reserve to save you, for a long enough time, many people are likely to be hurt. "

Is DeFi a time bomb?

On the other hand, some analysts believe that such a rapid growth of the DeFi market may jeopardize the security of the blockchain if the plan to upgrade Ethereum to a new consensus mechanism continues.

At present, like Bitcoin, Ethereum uses the PoW mechanism, but developers are actively adopting the PoS mechanism, that is, users can pledge their ETH to help operate the network while earning revenue.

This creates a conflict of interest: if everyone locks their funds on DeFi, there will be fewer people pledged ETH, thereby weakening the security of the Ethereum network. Therefore, the higher the adoption of DeFi, the worse the situation may be.