Worth The Talk? Weighing up DeFi Products with the Token Price Craze

Global DeFi markets are continuing to scale up to all-time highs in terms of total value locked, reaching a peak of $4.75 billion on August 11.

DeFi's mainstream riseAccording to Jack Tao, CEO of crypto exchange Phemex, a host of factors have contributed to the recent mainstream attention that the DeFi space has been attracting.

Charles Read, an angel investor previously involved with the development of projects such as DIA Data and the Orion Protocol, believes three key drivers have spurred the DeFi narrative in recent months: yield farming, liquidity mining and synthetic assets.

As a result, an increasing number of traditional exchanges will continue to back other DeFi projects, thereby leading older projects to pivot toward the domain of decentralized finance.

A somewhat similar outlook is also shared by Sandeep Nailwal, chief operating officer and co-founder of a blockchain scalability platform Matic, who believes that projects like Compound have set a precedent of success for the governance token model, which is now being replicated by every DeFi project.

It's worth noting that even before the recent DeFi mania kicked in, some projects like Synethix, Thorchain and Kyber network had been quietly accruing value all throughout 2020, showcasing a natural uptrend that was supported by trading volumes.

Is the DeFi token distribution scenario a worry?As per an all-new analytical study released by Simone Conti, co-founder of DeFi Italy and vice president at Eidoo, the overall token supply for most DeFi projects are being held by the top 500 addresses operating within the space.

The problem with concentration in DeFi tech is that governance tokens are designed to hold voting power, and if the top owners are in possession of large volumes of tokens, they basically hold an overwhelming majority of voting power.

Lastly, Tao opined that the aforementioned issue is a common one that afflicts most cryptocurrencies, further emphasizing that instead of simply fretting about the problem, other questions should be asked: "Who holds the majority of these tokens? Do they have the ability to easily manipulate prices? Would a more even distribution of DeFi tokens be more beneficial to the project as a whole?".

This DeFi boom isn't the 2017 ICO bubble?Even though it's easy to compare the ongoing DeFi boom to the ICO craze of 2017, individuals like Ryan Watkins, lead researcher for Messari, noted that such comparisons are unfair and do not do DeFi tech any justice.