Decentralized Finance (DeFi) may be 100 times bigger in the next 5 yea

Decentralized Finance (DeFi) may be 100 times bigger in the next 5 years

Decentralized finance (DeFi) is a natural product made possible by blockchain technology and has the right and ready infrastructure to propel the technology to a bigger playing field. The space has grown by leaps and bounds since the Ethereum network went live in July 2015, with Ethereum network transactions growing by 33x to 1.2 million per day currently, and blockchain transactions would exceed millions per day if other chains were included.

Most of these transactions originated from the DeFi services such as Uniswap, which facilitates over $1 billion swaps each day, as well as lending and borrowing protocols such as Aave, Compound and BondAppetit, with tens of billions in market size. While these are large numbers by any standard, it is only a decimal point of the trillion-dollar traditional finance (TradFi) industry.

DeFi is only scratching the surface of the TradFi services

The traditional financial system entails enabling exchanges of goods and services, including the stock market, debt market, derivative market, commodities market, payment, etc. This is facilitated by service providers — banks, insurance companies, stock exchanges, financial intermediaries, custodians, etc. — who collect trillion dollars of fees from the services provided.

Mainstream DeFi services currently include lending, borrowing, decentralized trading and yield-aggregating — a relatively short list as compared to the wide-ranging financial services offered in TradFi. This will not remain the status quo as the DeFi developers are actively exploring and building more services to the ecosystem. Protocols that find the right product/market fit will see explosive growth, e.g., the recent rise of dYdX.

The trillion-dollar TradFi market is ripe for disruption

Consumer banking. The global retail banking revenue is estimated at $2.3 trillion across multiple consumer finance products, including loan/lending, mortgage product, payment, etc. Specifically, consumer payments and transactions gross over $500 billion annual revenue to banks globally and could be tapped with a frictionless UI, a global stablecoin and broad acceptance points — the ambition of Facebook’s Diem before the regulatory pushback.

Capital market.

Global equity market capitalization is estimated at over $100 trillion, compared to only over $243 billion total value locked (TVL) in decentralized finance. Security tokens are an inevitable trend that regulators will eventually need to approve and construct the regulatory framework, and centralized and decentralized exchanges that adhere to the know-your-customer (KYC) requirement can tap into this trillion-dollar equity market in TradFi.


The global insurance industry is another trillion-dollar TradFi industry that can be perfected with smart contract technology. About one-third of the global insurance premium is allocated for administrative and commission costs, which is essentially short-changing the consumer. Smart contracts enable the cheap, fast and accurate implementation of the insurance processes from underwriting to claims, and will be a lucrative source of revenue for the DeFi industry.

Created on 11th Nov 2021