Here’s the how and why of DeFi’s battle with CeFi

The grip that centralized finance companies have on global finance is slowly loosening, with the focus now shifting to decentralized finance. The largest platform for DeFi, Ethereum is worth more than most top banks these days, especially since its market capitalization, at press time, was over $440 billion.

Pantera Capital recently assessed the market cap of CeFi v. DeFi via the following chart.

CeFi vs DeFi || Source: Twitter

Based on the above chart, decentralized finance is now more valuable than centralized finance. Additionally, Bitcoin and Ethereum each are worth more than most banks.

DeFi’s rising TVL makes it evident that its value has increased consistently since the beginning of 2021. Additionally, top DeFi tokens have rallied a few times in the current and previous altcoin rallies of 2021. There are a record number of projects moving from CeFi to DeFi and this might be just another bullish sign for DeFi projects in the long run.

Since DeFi is focused on users and community, DeFi projects are more popular when compared to CeFi. Ethereum’s market capitalization v. Bitcoin has played a key role in the development of DeFi projects.

ETH Market cap as % Bitcoin || Source: PanteraCapital

What’s more, it has been observed that as Ethereum’s market capitalization increases, there is an increase in inflows in top DeFi projects. DeFi projects like Synthetix SNX, Sushiswap SUSHI, yearn.finance YFI, and Aave AAVE, for instance, have offered double0digit returns on investment in the past week.

In the past 24 hours alone, since the price dropped for several altcoins across exchanges, DeFi project AAVE has offered 20% gains. Similarly, SNX and CRV have offered over 10% returns. This has led to a further increase in the number of users on the DeFi network. The current DeFi rally corresponds with the altcoin bloodbath which is expected to end before the weekend.

Total DeFi users over time || Source: DuneAnalytics

Total DeFi users over time have hit also a peak, after increasing consistently since January 2018 based on the above chart from Dune Analytics. This is another metric that signals DeFi’s increasing popularity among retail traders and HODLers across exchanges.

Initially, traders were drawn to DeFi projects for the rewards and incentives. However, at a time when most altcoins are offering negative returns, there have been several instances of DeFi tokens offering positive returns. This has contributed to DeFi’s popularity and use cases over CeFi.