The expansion of decentralized finance and the role of Ethereum in it, is the making point in the paper published by the Federal Reserve Bank of St. Louis.
A deep dive has been taken into the world of DeFi, by the research done by Dr. Fabian Schar and which he made public on May, 2 and which provides that if the risks and the security concerns can be addressed, it may cause huge changes in the financial industry.
According to Dr. Fabian Schar, Defi uses smart contracts to create protocol that replicate existing financial services in a more trsanparent, open and interoperable way. Also, its efficiency, accessibility and composability was hailed.
“DeFi may lead to a paradigm shift in the financial industry and potentially contribute toward a more robust, open, and transparent financial infrastructure.”
DeFi growth over the past year has been monumental, with a 700% increase in the total value locked across the ecosystem. At the time of writing, that figure stands at an all-time high of around $134 billion across different blockchain according to DefiLlama.
Dr. Schär explained that the backbone of the entire DeFi ecosystem is smart contracts, the majority of which run on Ethereum. The report lists a number of popular DeFi related tokens but points out that the vast majority of tokens are issued on the Ethereum network.
ETH is also used as collateral for a vast number of DeFi protocols and 10.5 million ETH, or 9% of the entire supply, is locked up according to Defipulse.