Limits of DeFi in Liquidity Supply and Scalability in DeFi
DeFi does not ask users’ ID and rely on intermediaries. This is why collateral assets matter the most for DeFi. A variety of DeFi protocols used in the current digital asset market are be of no avail without a collateral asset. Although synthetic assets like DAI, whose value is pegged to the USD, can be utilized as a collateral asset, another collateral asset need to be posted for synthetic assets for issuance. The amount of Total Value Locked is used as an indicator that presents the sum of asset value deposited on smart contracts. This in turn shows how big the DeFi market is. The current DeFi market size is inconsiderable even if the entire ethereum, which is the biggest cryptocurreny in the market, is taken as collateral. Therefore, the issue at hand is finding a solution to bring more digital assets into the market.
The primary service of DeFi is lending and deposit using Ethereum smart contracts, which has the second largest market cap. And DeFi relies on collateral assets. With this background, we suggest ways of expanding the market: Limits of Scalability in DeFi
1) Bringing the number one cryptocurrency Bitcoin into the DeFi market whose market cap. reaches KW160 trillion;
2) Tokenizing physical assets like gold, fiat, property, etc. to use as collateral.
Regarding the first suggestion, Bitcoin does not use smart contracts. The second one requires intermediaries and is only possible on the centralized system. As such, market expansion of DeFi cannot be solved with DeFi alone, and the issue regarding collateral asset expansion must be tackled.
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