DeFi’s rerating in perspective

Over the past months the DeFi sector received a significant rerating, after many months of building. Many tokens in the sector had been rising since Black Thursday in March, but it was the launch of Compound’s liquidity mining program that ignited what is increasingly shaping up to be the next big crypto bull run. Investors are now scrambling over each other to get in on DeFi tokens, which unlike most ICOs in 2017, have live products rather than pipe dreams. Further adding to the excitement, many DeFi tokens also generate cash flows, allowing investors to frame these tokens’ value using more common valuation methods.

However, despite all the attention and activity, DeFi still remains an incredibly small part of the total crypto market. In fact, the entirety of what we call DeFi is worth less than both XRP and Bitcoin Cash alone.

DeFi’s relative stature becomes even more stark when comparing it to all publicly traded layer 1 blockchains outside Bitcoin and Ethereum. DeFi is worth an order of magnitude less than these projects, which are collectively worth $45.7 billion.

A major reason many of these layer 1 blockchains are valued so richly relative to DeFi projects, beyond DeFi just having flown under the radar until a few months ago, is that many are competing for the non-sovereign store of value use case, which is likely to be a winner-take-all market and valued in the trillions of dollars. In theory most layer 1s are priced according to their probability of winning this market.

But when we analogize the crypto economy to the fiat economy, the idea that all these non-sovereign stores of value should be collectively worth more than the capital assets in the economy makes a bit less sense. Non-sovereign stores of value are worth ~$11 trillion combined, while stocks, the closest analogue to cash generating crypto protocols are worth $89 trillion. The analogy is far from perfect, and DeFi is just one sector of the crypto economy’s capital assets, but it just highlights how crypto markets have primarily only credited non-sovereign stores of value so far.