Ethereum’s decentralized finance space has seen exponential growth over recent weeks and months. According to data site DeFi Pulse, there is now $6.65 billion worth of cryptocurrency locked in so-called DeFi protocols. This same metric was closer to $500 million at the start of the year and around $1 billion in March.
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Similarly, coins pertaining to the DeFi space have gone exponential. The Yearn.finance (YFI) token recently surpassed $16,000, despite having launched at a price of around $3 just one month prior to this article’s writing.
While many think that this growth is predicated on true innovation, there are few that think the DeFi ecosystem is becoming unsustainable and unstable. It could thus soon face an unwinding as hype exits the DeFi space.
Ethereum DeFi Becoming Unstable? Preston Pysh Thinks So
Many in the cryptocurrency space have been watching DeFi’s parabolic growth over recent weeks. Again, many think that this growth is based on protocols will long-term value. But there is an increasing number of skeptics, who doubt the sustainability of the DeFi ecosystem at the moment.
Preston Pysh, a financial analyst/educator that co-founded the Investor’s Podcast Network, is one of these skeptics. He said on the matter:
“For me, this is turning into an unstable system. There’s now an incentive structure for shitcoiners to keep creating new tokens, capture liquidity to offload their bags (which used to be governed by exchanges), which is task saturating the ever growing fees on the ETH network.”
Pysh is referencing at least two things here: 1) the creation of random cryptocurrencies by developers like “Yam” and “Based” to capture the ongoing market trends, and 2) Ethereum’s increasing transaction fees, which are starting to price out smaller investors who cannot pay $5-10 for each interaction.
He went as far as to say that DeFi could cripple Ethereum:
“You’re missing my point. This incentive structure could destroy the ETH protocol. The irony, everyone in the ETH community is promoting the idea of DeFi…”
Long-Term Growth Just Starting?
While Pysh thinks that DeFi is unsustainable, there are some that argue long-term growth is just starting.
Investor Andrew Kang released a Twitter thread earlier this describing that from how he sees it, DeFi is still in the earliest phase of its growth. He explained that only recently have retail users begun to use DeFi, as this segment of the crypto market was otherwise meant for larger players in the Ethereum ecosystem.
This entrance of new investors, coupled with new projects, more educational tools, and more technical tools, should enable a long-term DeFi rally, he explained.
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Featured Image from Shutterstock Price tags: ethusd, ethbtc Charts from TradingVIew.com Financial Analyst: Ethereum DeFi Is Becoming an “Unstable” System
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