DeFi pumps Ethereum market cap to highest level since August 2018

The market cap for Ethereum has hit $40 billion, the highest level since August 2018.

Market capitalization is calculated by multiplying the price of a coin with the number of coins in circulation. It’s a useful benchmark for the size of a cryptocurrency network.

Ethereum’s rising market cap is linked to its rising price, which, similarly, hasn’t been this high since August 2018. 

Ethereum’s good fortune is linked to this month’s boom in decentralized finance, also known as DeFi. DeFi refers to non-custodial financial products, like synthetic stocks, decentralized stablecoins or lending protocols that give users easy access to money and high-interest rates.

The DeFi market cap yesterday hit $8 billion, and the total value locked up in its smart contracts today hit $4 billion; just two weeks ago, there was $3 billion locked up in its smart contracts, and $2 billion two weeks earlier.

DeFi protocols have become very popular recently due to the introduction of something called yield farming, where DeFi protocols offer users incentives for depositing their crypto with them (imagine it as another kind of interest for lending out your crypto). And most of these DeFi protocols live on Ethereum. Hence its boom. 

DeFi’s rise has helped spike the entire crypto market cap. Following the crypto market's ebb in mid-March, when its market cap crashed to $122 billion amid the shock to global markets caused by the pandemic, the crypto market cap has since almost tripled to $340 billion.

It’s also brought major tokens along for the ride. Bitcoin, still by far the largest cryptocurrency by market cap, today hit $11,600, an increase of about $2,000 since last Saturday. Bitcoin’s rise breaks its dry spell; it had hovered around $9,000-$10,000 for about two months.