Increased Bitcoin Tokenization Protocols and Yield Farming Frenzy Drive’s DeFi’s Success: ConsenSys Q2 Report
ConsenSys has released the Q2, 2020 DeFi report, and some exciting fundamentals such as BTC tokenization and Yield farming frenzy seem to have been the main growth drivers in this period.
Currently, the DeFi market total value locked (TVL) stands at $2.5 billion compared to $663 million at the beginning of the quarter. Nonetheless, this market has had its fair share of challenges, especially in security, with almost $26 million being compromised, although most of it was returned.
Bitcoin Tokenization Protocols on the Rise
Ethereum's protocol has undoubtedly gained a significant value amid the ongoing DeFi craze, which might be far from over. This gravity towards its ecosystem building tools has, in turn, pooled Bitcoin developers and maximalists to the ETH network as they look to make gains on decentralized finance products. That said, Bitcoin's integration with this ecosystem was inevitable; hence the spike in BTC tokenization protocols on Ethereum.
Interestingly, the shift in sentiment towards Ethereum's underlying DeFi value proposition has seen the total amount of BTC tokenized on the platform surpass the amount held on Bitcoin's Lightning Network.
As it stands, Wrapped BTC (wBTC) accounts for more than two-thirds of tokenized BTC on the DeFi ecosystem with rest being taken up by its counterparts, including hBTC, imBTC, sBTC, and renBTC. Consequently, the report notes a future in cross-chain interoperability,
“Cross-chain interoperability is anti-maximalist but is the more likely future of blockchain … Ethereum’s DeFi ecosystem has such strong gravity that even BTC holders have been finding ways to use it.”
The Yield-Farming Frenzy
A few years ago, decentralized finance products would have been wild imaginations given the underpinnings of centralized markets. This has now changed with the inception of DeFi, giving rise to what is now popularly known as ‘Yield Farming'.
Basically, prospects can leverage DeFi resources to access a pool of financial products such as lending or borrowing facilities at convenient market rates driven by demand and supply amongst other factors such as token reward and burning mechanisms.
Compound, which made a debut within Q2, is leading DeFi protocol as of press date with a 27% market dominance. This initiative made major news in crypto after it announced the commencement COMP token reward allocations along with ‘Yield Farming' interest making resources.
“The result has been that enterprising DeFi users have been maximizing their COMP yield (i.e. “yield farming”) by using DeFi mechanisms to unlock capital and then lending/borrowing on Compound.” reads the ConsenSys report.
Hacks Still a Threat
Despite its success, the DeFi market is still very vulnerable to hacks as well as crypto arbitrage opportunities. According to the ConsenSys report, three major attacks defined Q2 in DeFi.
The biggest one was a $25 million hack on Lendf.me in which was later returned after the hacker's IP was exposed, forcing them to negotiate. The other two were executed on Uniswap and Balancer, which saw $340,000 and $450,000 compromised, respectively. ConsenSys, however, acknowledged the ongoing efforts to make DeFi more secure,
“The DeFi community continues to develop strategies to hedge against it, including auditing services, security products, and insurance applications.”