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Decentralized Finance Market Trends

ID: MRFR//9990-HCR | 128 Pages | Author: Aarti Dhapte| June 2024

Decentralized Finance Market Overview

Decentralized Finance Market Size was valued at USD 14.1 billion in 2022. The Decentralized Finance market is projected to grow from USD 20.69 Billion in 2023 to USD 446.43 billion by 2032, exhibiting a compound annual growth rate (CAGR) of 46.80% during the forecast period (2023 - 2032). A significant change in the financial sector and increasing acceptance of DeFi (Decentralized Finance) to eradicate the intermediaries are the key market drivers enhancing market growth.

Figure 1: Decentralized Finance Market Size, 2022-2032 (USD Billion)

Decentralized Finance Market

Source: Secondary Research, Primary Research, MRFR Database, and Analyst Review

Decentralized Finance Market Trends

  • Growing applications of decentralized finance is driving the market growth

Decentralized Finance is a new financial paradigm that uses distributed ledger technologies to provide services such as lending, investing, and crypto asset exchange without relying on a traditional centralized intermediary. A variety of DeFi protocols implement these features as a suite of smart contracts, or computer programs that encapsulate the logic of conventional financial transactions. Instead of interacting with a counterparty, decentralized finance users interact with software programs that aggregate the resources of other DeFi users to maintain control of their funds. DeFi is based on distributed ledger technology (DLT) applications, but DLT-based financial applications are not included by default. The degree of decentralization varies from DeFi project to DeFi project, and in many cases depends on the application's development stage. The DeFi market has grown by a factor of ten since the summer of 2020 when several DeFi applications began gaining traction with consumers. In November 2021, the total value of crypto-assets secured in decentralized finance applications built on Ethereum blockchains reached $100 billion, up from less than $2 billion in July 2020, a 50-fold increase. Given the extremely high returns offered, the dread of missing out, and the reusing of gains from other crypto-asset activity, it is evident that speculation is driving the price increase of DeFi tokens. The growing applications of decentralized finance are anticipated to boost the market CAGR during the forecast period.

DeFi applications have the potential to provide financial market participants with benefits in terms of execution speed and transaction costs, as a result of the efficiencies generated by DLT-technological innovation and the disintermediation of third parties replaced by smart contract software code. Depending on the design of governance arrangements, DeFi could potentially facilitate more equitable participation of consumers in markets. Due to the open-source nature of the protocols, DeFi may encourage innovation in financial services and may have the potential to promote financial inclusion, depending on the design as well as transaction arrangements (e.g., fees levied). The substantial expansion of DeFi for financial services like lending could result in increased procyclicality and the emergence of new concentration risks, thereby posing threats to financial stability. Considering the volatility of the underlying collateral and the use of automation and inventive technological processes, peer-to-peer lending may result in larger and more pronounced swings in credit provision when compared to traditional lenders.

According to the OECD, the overall value of crypto-assets locked in DeFi applications constructed on the Ethereum blockchain reached USD 100 billion by November 2021, up from USD 1.9 billion on July 2, 2020 (a 150% rise in less than a year, albeit from a very low starting point).  In addition to tokens for governance, DeFi platforms issue crypto-assets or stablecoins intended to support app transactions, backed by user transactions. The transaction volume on DEXs reached an all-time high in the second quarter of 2021, reaching USD 343 billion (Consensys, 2021). This is noteworthy because DEXs facilitate trading just for EVM (Ethereum)-compatible assets, whereas Bitcoin accounts for 58% of Coinbase's trading volume (Consensys, 2021). As of June 2021, Uniswap as well as Sushiswap command the market for DEXs and contribute to 80% of the trading volume. The most significant purported advantages of DEXs are atomic token exchanges and real-time user transparency. The atomic settlement was one of the most significant innovations in blockchain-based finance, with significant implications for the settlement of conventional financial securities. Thus, driving the Decentralized Finance market revenue.

Decentralized Finance Market Segment Insights:

Decentralized Finance Component Insights

The Decentralized Finance Market segmentation, based on components includes blockchain technology, decentralized applications (dApps), and smart contracts. The blockchain technology segment dominates the market, accounting for majority of the market revenue. Blockchain technology can supplant the current foundations of decentralized business models by fostering distributed trust, reducing transaction costs, and empowering decentralized platforms.

Figure 2: Decentralized Finance Market, by Type, 2022 & 2032 (USD billion)

Decentralized Finance Market

Source: Secondary Research, Primary Research, MRFR Database, and Analyst Review

Decentralized Finance Application Insights

The Decentralized Finance Market segmentation, based on application, includes assets tokenization, compliance & identity, marketplaces & liquidity, payments, data & analytics, decentralized exchanges, prediction industry, stablecoins, and others. The data & analytics category generated the most revenue. DeFi protocols offer significant advantages for data analysis and decision-making. DeFi protocols facilitate risk management as well as generate business opportunities as a result of their data and network activity transparency. Using various interfaces and tools, users of DeFi platforms can compare yield and liquidity, as well as evaluate platform risk, thanks to the capabilities provided by these platforms.

Decentralized Finance Regional Insights

By region, the study provides market insights into North America, Europe, Asia-Pacific, and the Rest of the World. The North American decentralized finance market dominated the market in 2022. The dominance is attributable to the presence of significant players.  Moreover, North America is one of the greatest crypto markets in the world, which bodes well for the adoption of DeFi platforms.

Further, the major countries studied in the market report are The U.S., Canada, German, France, the U.K., Italy, Spain, China, Japan, India, Australia, South Korea, and Brazil.


Decentralized Finance Market

Source: Secondary Research, Primary Research, MRFR Database, and Analyst Review

Europe’s decentralized Finance market accounts for the second-largest market share due to the benefits offered by DeFi technology vendors. The system eliminates the control those financial institutions, such as banks, have over money, financial products, and financial services. In addition, it eliminates the usage fees that banks and other financial institutions charge for their services. Moreover, the German Decentralized Finance market held the largest market share, and the U.K. Decentralized Finance market was the fastest-growing market in the European region.

The Asia-Pacific Decentralized Finance Market is expected to grow at the fastest CAGR from 2023 to 2032. This can be attributable to Asia's robust economic development and rapid adoption of technology. In the Asia-Pacific region, there are presently numerous DeFi platforms and other organizations utilizing blockchain technology. Strategic initiatives undertaken by industry participants contribute to the expansion of the region. Moreover, China’s Decentralized Finance market is expected to hold the largest market share, and the Indian Decentralized Finance market is anticipated to be the fastest-growing market in the Asia-Pacific region.

Decentralized Finance Key Market Players & Competitive Insights

Leading market players have engaged in collaborations and partnerships with other financial organizations, fintech companies, and technology vendors to broaden their reach and expand their product and service offerings. Market participants are also undertaking a variety of strategic alliances between competitors along with key market developments to expand and survive in a more competitive and rising market climate.

companies have diversified their product offerings to satisfy the fluctuating demands of borrowers and lenders in the global Decentralized Finance industry to benefit clients and increase the market. In recent years, the Decentralized Finance industry companies have placed a significant emphasis on digital transformation as they endeavor to provide an easy convenient option to clients. Major players in the Decentralized Finance market, including Compound Labs, Inc., MakerDAO, Aave, Uniswap, SushiSwap, Curve Finance, Synthetix, Balancer, Bancor Network, and Badger DAO, among others players.

Compound Labs develops and designs software. The company provides a web interface that modifies money market interest rates algorithmically based on asset-specific supply and demand. Compound Labs serves United States consumers. In June 2021, the Decentralized finance (DeFi) company Compound Labs, which created the Compound currency market on Ethereum, will launch a new company called Compound Treasury. Compound Treasury, in collaboration with Fireblocks and Circle, enables neo-banks and fintech companies to transmit dollars which are transformed into USDC, the dollar-backed stablecoin Circle manages in collaboration with Coinbase.

Aave operates as a protocol-based liquid market that earns interest on decentralized leasing and borrowing. It offers blockchain, financial technology, cryptocurrencies, smart contracts, lending, finance, technology, payment processing, and custody services. The business was established in 2017 in George Town, Cayman Islands.

Key Companies in the Decentralized Finance market include

Decentralized Finance Industry Developments

January 2022: Meta mask, a Web3 wallet company, announced the launch of Ethereum staking features compatible with Lido's liquid staking solutions. If end users want to earn staking rewards, they can select any staking provider from the Web3 wallet's user interface. The initiative will contribute to the expansion of the global decentralized finance (Decentralized finance) market.

January 2022: Blue, a company that provides identity verification services for Decentralized finance vendors, raised $3.2 million. The tactical choice will be utilized to considerably improve the identity verification operations of the Decentralized finance protocol.

December 2020: The TrueFi DeFi lending system was introduced by Trust Token, allowing consumers to obtain consistently high returns. This method offers qualified borrowers fixed-rate, fixed-term loans with no additional collateral requirements. In less than 24 hours after establishing its platform, the platform attained USD 35 million in Total Value Locked (TVL).

Decentralized Finance Market Segmentation

Decentralized Finance Component Outlook

  • Blockchain Technology

  • Decentralized Applications (dApps)

  • Smart Contracts

Decentralized Finance Application Outlook

  • Assets Tokenization

  • Compliance & Identity

  • Marketplaces & Liquidity

  • Payments

  • Data & Analytics

  • Decentralized Exchanges

  • Prediction Industry

  • Stablecoins

  • Others

Decentralized Finance Regional Outlook

  • North America

    • U.S.

    • Canada

  • Europe

    • Germany

    • France

    • U.K.

    • Italy

    • Spain

    • Rest of Europe

  • Asia-Pacific

    • China

    • Japan

    • India

    • Australia

    • South Korea

    • Australia

    • Rest of Asia-Pacific

  • Rest of the World

    • Middle East

    • Africa

    • Latin America

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