Covid-19 and DeFi — TokenInsights Releases Q2 2020 Report on Decentralized Ecosystem

TokenInsights has released their Q2 2020 DeFi industry report to shed some light on the fast-moving Decentralized Finance (DeFi) ecosystem.

The Q2 2020 DeFi industry report has been broken into multiple parts including trading (DEXs, Derivatives and Prediction Market), Issuance (Stablecoins, Lending, Non-Fungible Token), Asset Management, DeFi Infrastructure and Others, as well as Investment and Ratings.

COVID-19 and DeFi

The first half of 2020 was shattered by the global COVID-19 pandemic which snowballed into a significant economic shock that has created a ripple effect on a global level. One of the most interesting and emerging sectors of the cryptocurrency industry—decentralized finance has continued its innovation and growth at a significant pace despite the global economic downturn.

According to the report, entitled Q2 2020 DeFi Industry Report Part 1: DEXs—the DeFi ecosystem saw accelerated growth in the second half of 2019 with leading projects such as MakerDao, Uniswap and Compound Finance taking out solid positions in the DeFi ecosystem.

Then came the first half of 2020 and the global financial market crash, now known as Black Thursday. The traditional market turmoil also spread to the cryptocurrency industry, and at that time the industry saw a market-wide panic as well as dried up market liquidity—which ultimately resulted in marketwide liquidation and opened the door for system-wide structural risks to be surfaced in the cryptocurrency market, particularly in the DeFi ecosystem.

The Black Thursday market crash, unfortunately, proved to many people that the cryptocurrency markets are still very correlated to the traditional ones and the evaporation of liquidity created a cascading effect and impacted every single aspect of the cryptocurrency market.

The researchers assert, “We are still growing fast in this early ecosystem, and a robust, structured decentralized financial system is needed to deliver the next-generation financial system to the world. The Black Thursday event was an early stress test to the DeFi financial system, and the industry held it together and successfully passed.”

The researchers conclude that the global zero-bound interest rate appears to be potentially re-directing the money flow out of the traditional market and into the DeFi ecosystem where the interest rate is significantly higher than the one in the traditional system, although attracts higher risks compared to the traditional regime.

Click here to read the full report.