In brief

  • The Wharton School of the University of Pennsylvania has just published its assessment of the decentralized finance (DeFi) sector.
  • While noting that DeFi has the potential to "transform global finance", the report also highlights a variety of obstacles faced by the sector.

The Wharton School of the University of Pennsylvania has released a report titled “DeFi Beyond the Hype,” produced by the Wharton Blockchain and Digital Asset Project in collaboration with the World Economic Forum. 

According to the famed business school, the DeFi industry has the potential to transform global finance. To date, however, it has yet to fulfill the hype.

“DeFi has the potential to transform global finance, but activity to date has concentrated on speculation, leverage, and yield generation among the existing community of digital asset holders,” the report said, adding that the novel industry is exposed to many risks. 


The state of DeFi according to Wharton

DeFi Pulse, a data platform tracking the growth of DeFi, indicates that there is more than $54 billion locked into the sector. This figure was just under $1 billion last year.

DeFi Pulse Total Value Locked (TVL) over the past year. Source: DeFi Pulse.
DeFi Pulse Total Value Locked (TVL) over the past year. Source: DeFi Pulse.

Amidst the growing industry, the Wharton report claims there are six chief uses within the sector: stablecoins, decentralized exchanges (DEXs), credit, derivatives, insurance, asset management, and “auxiliary services,” including wallets and oracles. 

Some of the chief benefits of the sector—according to the report—include reduced friction and transaction costs for the trading and distribution of financial assets. In addition, the report suggests that DeFi allows for increased transparency, greater stakeholder control, improved market access, and faster settlement than traditional financial markets. 

“DeFi is still young, granted, but this is the time to embrace this new permissionless technology and be a part of something special,” Charles Storry, head of growth at Phuture, told Decrypt, adding, “It’s time to get off the sidelines.” 

Despite the progress, however, the report admits the sector is not without its growing pains.


“Like blockchain technology more generally, DeFi has an enthusiastic base of evangelists, who promote its potential for efficiency, transparency, innovation, and financial inclusion,” the report says, adding, “it also has its critics, risks, and unknowns.” 

These risks include fraud, regulatory uncertainty, and immature technology. According to the report, today's industry is also at risk of hidden centralized control, where certain actors may have disproportionate control over others. 

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