The radical opportunity presented by decentralized finance has garnered significant attention from investors and speculators alike. The total value locked in DeFi protocols grew over 2,500% in 2020, from around $700 million in January 2020 to over $20 billion in December 2020. TVL is a more useful metric than market capitalization when it comes to DeFi, as it accurately represents the equity that investors are willing to commit to these protocols. And their commitment didn’t end in 2020; this year alone, DeFi’s TVL more than doubled, reaching $40 billion in February.
While DeFi’s growth over the last year can be largely attributed to retail investment, 2021 is shaping up to be the year institutions start getting in on the action. As yields from fixed-income assets continue to drop to historically low levels and unprecedented stimulus packages ratchet up inflation expectations, a massive amount of money is now seeking higher returns.
Forward-thinking asset managers are turning to DeFi. Circle — the issuer of popular stablecoin USD Coin (USDC) — is set to launch the first high-yield digital dollar account to be aimed at institutions. By lending out to the capital-hungry crypto markets rather than oversaturated traditional markets, the account can offer up to 10.75% annual percentage yield. While it will initially serve only businesses, there are plenty of options that cater to individual investors.
How to bring institutional investors into DeFi
During DeFi’s explosive growth in 2020, dozens of separate attacks drained investor funds, with half of all crypto attacks in crypto were of DeFi protocols. Many of these exploits made use of tactics as new and creative as the protocols themselves. Others were repeats of previous exploits that remain frustratingly easy to prevent. While any loss of funds is unfortunate, the security of DeFi has improved greatly over the…