Federal Reserve Bank Paper: DeFi May Cause a Paradigm Shift

The world is moving towards complete digitization, and measures like DeFi and cryptocurrencies play a big part in it. Ethereum is major crypto, and even the Federal Reserve Bank proved it as well. The institution recently released a paper stating how Ethereum will help the DeFi sector in modernizing the world.

Written by Fabian Schär, the research paper was released on May 2, 2021. Fabian is currently a professor of distributed ledger tech at the Switzerland’s University of Basel. The paper explores the DeFi sector in-depth and even hints at how it can revolutionize the financial industry. As per Fabian, DeFi can eliminate risks and security issues from the sector.

The paper mentions how DeFi uses smart contracts to build protocols, replicating current financial solutions in an interoperable, transparent, and open manner. Thus, Fabian thinks that DeFi is accessible, composable, and efficient.

Given the astounding 700% growth in the total locked value of DeFi in one year, the claims appear to check out. The amount currently stands at 134 billion dollars throughout the blockchain ecosystem. Ethereum is believed to be the largest network supporting cryptocurrencies, and the paper supports the fact.

Fabian stated that smart contracts act as DeFi’s support system mostly operated on the ETH network. It is currently used as collateral for numerous 10.5 million ETH and numerous DeFi protocols. To put it into a better perspective, it amounts to 9% of the overall supply.

The paper states how ETH is unlocking DeFi’s potential. With both sectors growing rapidly, financial institutions, researchers, and policymakers are trying new Dei prospects. Currently, over 1.75 million ETH addresses are interacting with global DeFi protocols. The numbers have grown over 10 times in the previous year alone.

ETH recently touched the 3,500 dollar mark, and the research also shows how ETH will keep its momentum. Going by growth rate alone, Ethereum is outperforming Bitcoin at the moment. Given BTC’s market stature, the feat is enough to startle the industry.

Even the smart contracts sector is looking to step up its proceedings. Recently, Uniswap launched its V3, enhancing the liquidity depth provided by its predecessors. As per Uniswap, the latest version can facilitate 4,000x capital efficiency within a 0.10% price range.

Ethereum is one of the biggest cryptos in the world, and its contribution to the DeFi sector is unparalleled. The new paper by the Federal Reserve Bank emphasizes the same as well. Written by Fabian, a university professor, the research shows how ETH and DeFi will assist the financial industry. With ETH outperforming BTC and Uniswap launching its version 3, the claims seem achievable.

David Cox

David is a finance graduate and crypto enthusiast. He projects his expertise in subjects like crypto and Blockchain while writing for CryptoNewsZ. Being from Finance background, he efficiently writes Price Analysis. Apart from writing, he actively nurtures hobbies like sports and movies.

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