Ethereum’s price has performed rather poorly these past two years, leading many in the cryptosphere to cast doubt about the future of the protocol.
However, Decentralized Finance (DeFi) products continue to soar higher. DeFi instruments have surpassed the $800 million mark in total locked value (TLV) in USD. Analysts are now speculating that despite ETH’s poor performance in terms of price, Ethereum could be the first cryptocurrency to reach the $1 trillion dollar mark in terms of total market capitalization.
Ethereum which is an open-source, public blockchain-based distributed computing platform and operating system supporting smart contract functionality was first proposed in 2013 by Vitalik Buterin. The blockchain suffered a hard fork after a flaw in THE DAO project’s smart contract led to the theft of ether worth over $50 million USD.
Proponents of Ethereum believe that it will one day power a trustless global economy where everyone can participate.
DeFI has seen a huge growth in the last weeks of 2019, as the total locked value soared over 80% but still the price of Ether remained on a decline across 2018 and 2019.
Despite that, growth in DeFi products is directly associated with the price of ETH. The total liquidity of Ether represents the economic bandwidth of the network and as such a rise in the prices of ETH leads to a scenario of more collateralization of financial assets on the network.
If DAI, which uses ETH to be collateralized, hits $1 Billion in market cap, the TLV required to collateralize ETH will jump to 15.34% of the total value of ETH, taking things like the price of ETH and the liquidity to be constant. Considering that the price of ETH might rise to $500 USD in 2020, keeping everything constant would still represent at least 2x times the economic bandwidth currently used by all DeFi products.
Even if just 1% of the $670 Trillion USD in the global market gets into the traditional derivatives market into DeFI, Ethereum price may hit 5-digit figures easily. All of that will push ETH’s market cap to hit $1 Trillion USD.
What do you think, are you long on ETH or short?