New EUBOF report on DeFi

The European Blockchain Observatory and Forum (EUBOF) has just published a report presenting a comprehensive overview of the rapidly expanding decentralized finance (DeFi) sector.

The DeFi sector analyzed by the EUBOF report

The European Blockchain Observatory and Forum was created to help accelerate blockchain innovation and ecosystem development within the EU. Making recommendations on what role the Commission should play within the blockchain world, it published a report on the state of DeFi and its possible present and future applications.

The EUBOF report, coordinated by the Institute for the Future (IFF) at the University of Nicosia, offers a comprehensive review of blockchain innovation in terms of decentralized finance. The report attempts to explore what may be similarities and differences between DeFi and traditional or conventional finance (TradFi) in four main areas: inherent characteristics, functional differences, operational differences and the regulatory landscape.

Furthermore, after defining DeFi, it tries to analyze what the main fields of current applications are, which are divided into stablecoins, lending and financing, and exchanges.

Regarding the main differences between traditional finance and DeFi, the EUBOF experts point out that TradFi uses double-entry bookkeeping, which has been used for over 600 years.

They then point out that DeFi is governed by codes and algorithms because of its inherent characteristic of not needing any intermediary. The report states that:

“Any discrepancies need extensive audits and administration. DeFi bypasses this by making use of an economy-wide accounting system, first referred to by Ian Grigg as triple-entry accounting. This means that the accounting entries are cryptographically sealed by a third system (blockchain) that’s verifiably congruent and serves as both the transaction and the receipt (proof that a financial transaction took place between two counterparties)”.

Expert opinion on the discrepancies between DeFi and TradFi

Professor George Giaglis, Executive Director of the IFF, who co-authored the research with EUBOF, stated that: 

“DeFi is a novel and fast-growing area of financial services, and this report outlines key areas of the DeFi ecosystem which represents a paradigmatic shift in financial services provisioning and promises to be one of the most disruptive applications of blockchain-fueled decentralisation. 

We are proud to have worked with the European Commission and our partners at EUBOF to produce this report that helps the reader learn more about the fundamentals of DeFi, its underlying technologies and the prominent applications in the revolutionary world of DeFi”.

The experts from the European Blockchain Observatory then assessed the exponential growth of DeFi, which in the past year has grown from a few hundred thousand users to over 4 million by the end of 2021, a number that then stabilized in the first months of 2022. 

The months that saw the greatest growth were those between August and December 2021. Just to mention one of the most popular web wallets, MetaMask, the report points out the staggering growth of active addresses, which recorded +1800% from July 2020 to August 2021. As far as dApps are concerned, PancakeSwap with more than 2.8 million users is confirmed in first place when it comes to active users.