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Over the last few months the DeFi markets have been very hot with some tokens posting 100x+ gains and minting new millionaires seemingly overnight. Though, as Stani notes below, if we compare DeFi to its centralized counterparts we can see that it’s still very undervalued.
According to CoinGecko, the total DeFi market cap is currently sitting at $83 billion which is up from a total of $20 billion at the start of this year. Uniswap alone currently counts for $15.6 billion of this total with a fully diluted valuation of $30 billion. Obviously lots of people in the community have been comparing Coinbase’s $100 billion valuation to Uniswap and asking “well, why can’t Uniswap be worth that much?” because Uniswap is consistently doing similar trading volumes to Coinbase, has a major release in v3 on the way, and has growth prospects that most startups can only dream of.
Outside of Uniswap, we have a plethora of other DeFi apps that are worth $5 billion or less that are generating significant value for users on Ethereum today. Let’s take Maker for example - this app is a long-time staple of DeFi that has $6.8 billion locked in its protocol (consisting mostly of ETH) and allows people to get cheap leverage and use DAI as a stablecoin. The protocol is also generating revenue by charging fees on vaults and then using those fees to buy and burn MKR tokens (MKR’s market cap is currently $2.2 billion). Now, I’m not saying that you should go buy MKR or anything but I do believe that the market is being inefficient when it comes to properly valuing DeFi tokens. Just look at how many “ghost chains” still reside in the top 30 - NEM is still worth $5.3 billion and no one can tell me what it does!
I think overall the growth prospects are the critical point here - DeFi’s user-base is tiny compared to centralized exchanges & services and yet DeFi is growing at a much faster pace every month and in some cases is already beating its centralized counterparts. On top of this, Ethereum hasn’t even scaled in a big way yet, DeFi is still complex to use for new people and many of the DeFi apps are still in active development - this just signals to me that we have so much room left to run and even though the ride will be bumpy I believe that it’ll be very worth it for those who stick around.
All in all, the total addressable market for financial applications is every single human being on planet Earth - 7.8 billion of us - that will all eventually have access to DeFi as long as they have some hardware and an internet connection. So if Ethereum and DeFi are truly going to create this global, decentralized, permissionless, censorship-resistant financial system for the world then shouldn’t the protocols powering this system be worth trillions of dollars? What about ETH - the reserve asset of this system - shouldn’t that be worth trillions too? What about all of the infrastructure that makes Ethereum and DeFi possible? Well, I believe it all should and that’s why I’m placing all my bets in these areas.
This ain’t your average revolution; this is Ethereum.
Have a great day everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.