DeFi Gains Popularity, but Real Earnings Remain Slim

Returns from holding funds in DeFi schemes remain lower in comparison to taking a risk by “hodling” crypto coins outright.

DeFi returns at best resemble the rather conservative earnings of mainstream finance. Compared to simply holding Bitcoin (BTC) or other coins outright through 2019, crypto lending and other staking schemes offer returns of about 5%. Still, the schemes offer an alternative use case for Ethereum (ETH), and may be a hedge against risk.

Based on observations by Token Analyst, even leading crypto lending schemes did not promise too much in 2019. Investing $1,000 at the start of 2019 gives vastly different results depending on the type of product or coin chosen.

The entire crypto market, including defunct and lagging coins, has managed to double its market cap in 2019, mostly on the back of the gains of BTC and a handful of leading altcoins. At the same time, DeFi has been more conservative in its promised gains. Crypto lending has tried to avoid overheating and loss of trust, as well as accusations it is moving too fast and turning into a Ponzi scheme.

DeFi schemes hold an estimated $650 million, with steeper growth in the past few months. Investing directly through crypto assets is one way to gain access to potential growth and risk, without the limitations of mainstream investments.

One of the chief tools for DeFi, the DAI stablecoin, will also evolve in the coming months. The Kraken exchange stated it would participate in exchanging the current DAI for its multi-collateral version. DAI supply has grown to above 102 million, with the potential to grow to 120 million. Currently, DAI is about 340% collateralized by ETH reserves. More than 1.79 million ETH is held in the Maker smart contract.

Crypto lending is the fastest growing sector in DeFi, as well as possibly the riskiest. After the crisis and acquisition of SALT Lending, trust in Maker increased. Currently, Maker and Compound still stand at the lead for crypto lending.

Exchanges are also gaining ground in promising significant annualized returns for locking in assets. Stablecoins are one of the crypto assets chosen for staking, since they exclude market price risk.

However, growing ETH and altcoin prices may add to the effective gains of DeFi. In any case, the presence of crypto locking schemes has served to mop up coins from the market.

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