The total value of crypto assets blocked in DeFi applications reached $3 billion, increasing by $1 billion in two weeks. One of the reasons for growth is the launch of the COMP token of the Compound Protocol.
According to DeFi Pulse, it took 2.5 years for the volume of assets blocked in decentralized Finance (DeFi) applications to exceed $1 billion. Soon after, it fell to $600 million, and then rose again. After a sudden increase, it broke the $2 billion mark for the first time in early July.
Now, two weeks later, another $1 billion is locked into the DeFi ecosystem, and the industry shows no signs of slowing down. The current explosive growth of DeFi began after the second largest Protocol, DeFi Compound, began distributing its COMP token to manage the Protocol.
The token has sharply increased in price and aroused great interest in the industry. The launch of COMP on June 15 provoked the desire of industry participants to increase their income. This phenomenon is called “yield farming”.
To function, DeFi apps reward those who provide liquidity. The more liquidity someone provides, the more tokens they receive. “Yield farming” is the practice of maximizing these rewards using high leverage solutions: the greater the risk, the higher the reward.
The problem is that such incentive systems bring huge amounts of money to the DeFi industry. The explosive growth worries market participants, who fear that it could lead to the collapse of the industry. Senior lawyer at Blockchain Capital, Alex Larsen, wrote that such schemes carry risks:
“You can imagine a situation where an external Protocol creates incentives that, without any actions of their own, can lead to dangerous behavior in another Protocol and, ultimately, provoke cascading liquidations and losses for users. However, the process of combat testing on real money will eventually lead to the strengthening of systems with well-understood risks.”
Recall that, as recently reported by a subsidiary of ConsenSys Codefi, the activity of users of DeFi applications continues to grow, while most often the same users interact with products.