The boom in the DeFi space may be overvalued – DappRadar

According to a report by DappRadar, the recent boom in the decentralized finance (DeFi) space may be significantly overstated. The total value locked (TVL) in DeFi space hit $3 billion for the first time in July. In August, that figure has doubled to $6.3 billion. However, DappRadar argues that in reality, the actual growth of the DeFi is much less explosive. The firm noted that “75% of the total value locked increase was fueled by a token price,” suggesting that just 25% of the recent growth was due to money moving into the industry. 

DappRadar analyzed MakerDAO, the top DeFi lending platform responsible for 24% of the total value generated in the sector (around $1.5 billion). The firm found that 97% of its TVL is locked in Ethereum (73%), Wrapped Bitcoin (8%) and its native token MKR (17%). The prices of all three tokens have notably increased over the past month.

All 3 tokens faced an increase in value within the 30 days period. It raises the question, how extensively token price affected the TVL metric. Total value locked in dollars can deliver a distorted view of the category development.

If the token’s price increases, it will cause a corresponding surge in the TVL. But if the number of actually staked tokens doesn’t change, no new assets are flowing into the DeFi protocol. The researchers noted that while there was a colossal increase of about $800 million in the TVL of MakerDAO’s three tokens, the real growth amounted to only about $200 million when an inflation-adjusted value is taken into consideration.