Since the summer of 2020, the decentralized finance (DeFi) scene started to show its dominance in the crypto market. This brought to life the comparison of how initial coin offerings (ICOs) made a craze to investors in 2018.
Questions on what is an ICO and how DeFi works were brought up numerous times. To bring some clarity, let’s look at how DeFi performed across 2020 and what made ICO so great back in 2018.
ICO Market in 2018
To start off, let us briefly answer what is an ICO. ICO stands for initial coin offering, the very first token sale offered to the public by a new crypto venture. From a business perspective, it is similar to the stock market’s initial public offering (IPO). ICO is the novel way of raising funds for various types of blockchain projects, done by selling their native cryptocurrency.
Generally-speaking, records show that the highest point of growth of the ICO market is achieved in 2018. During this year, around 2,284 ICOs were completed and investors could select, on average, over 480 token sales opening every day of the year. Impressively, the total amount raised in 2018 was almost $11.4 billion.
The most noteworthy ICO event was done by Filecoin that successfully raised $257 million. Notably, Ethereum remained as the leading blockchain platform for ICOs with over 80% market share reported in 2018.
DeFi Market in 2020
The DeFi market grew massively, specifically during the Q3 of 2020. From $1 billion worth of total value locked (TVL) in July, it peaked at over $14 billion in November. To explain how DeFi works simply, it aims to promote an open financial system. Mainly utilizing the Ethereum blockchain as its core infrastructure, DeFi is based on smart contracts. This enables it to form programmable open protocols and decentralized applications (DApps).
The DeFi sector has continued to grow in popularity in 2020. Various DeFi applications, products, protocols, and tokens were introduced. Main categories include lending, decentralized exchanges (DEXes), derivatives, payments, and assets. In line with this, DeFi apps reached an all-time high of over $600 million since June 2020.
The most popular DeFi coins in 2020 are Chainlink, Wrapped Bitcoin, DAI, Aave, Uniswap, Yearn.finance, Synthetic Network, MakerDAO, UMA, and Compound.
If ICOs are dead, will DeFi survive?
The ICO boom faded away as new ways of introducing digital assets came into play. Not to mention the negative sentiment it left behind due to unregistered ICOs and undelivered projects turned into scams. Falling behind the essence of what is an ICO all about, investors and traders are skeptical about DeFi as well. Though the support of the crypto community is still evident on it.
For DeFi to survive, a healthy DeFi ecosystem requires casual, retail investors as well as experts backing it up. Sustained value in the space will come from systemic trust and further institutional involvement.
Once DeFi is considered as a constant factor in the decision-making and development of the decentralized world, the long-term value will be established. Hence, the functionality and innovation of DeFi will continue to progress, paving the way for massive adoption.