The biggest custodian of eth is turning out to be the ethereum network itself with the amount deposited in smart contracts surpassing the eth sums held by exchanges.
According to Glassnode Studio, a blockchain analytics startup, 16.5% of ethereum’s total supply is now held by smart contracts.
That translates to some 18 million eth, worth about $8 billion, while exchanges hold 11% of the supply or 15.5 million eth worth about $7 billion.
So the decentralized code network itself is holding $1 billion more than the trading venues, indicating a potential shift and maybe even an opening for disruption.
As ethereum is Turing complete, you can code anything there, including an exchange. That is precisely what quite a few projects have done.
In the process, something new has been invented: Automated Market Making. That is something like Uniswap where any token can have a market by self listing liquidity pools on Uniswap with the price of eth/token in the pool determined by the number of eth and tokens in there.
This has given a market to way more trading pairs than any centralized exchange, with things like MakerDAO’s DAI or Compound complementing it by focusing on unlocking liquidity.
The space has now gotten a lot more complex with cDAIs and all sorts of dapp specific improvements and innovations in a very vibrant field where basic banking functions are provided to all in addition to trading including of stocks through Synthetix.
Then there’s the coolest thing in this space: flashloans. They’re for free on dYdX because they never thought these could be of use by themself, but AAve liquidity providers charge for the insta-borrowed and repaid eth or asset/s.
Here, as a passive user you can benefit by depositing eth to something like AAve and then hope smart coders insta-borrow it to flashloan
havoc make rich, and in the process give you some for the privilege of you allowing them to use the eth.
Flashloans are a very new thing, but they may have repercussions in the real world as well because banks might also start lending on whether you can pay back the loan at the end, rather than on whether you are rich already.
Where flashloans are concerned, there is no question of whether. The protocol looks at the code and what actions it wants to make and if it’s in profit, then it executes. Otherwise, it just doesn’t give you the money, so there’s no flashloan at all.
All these things have now combined to make the ethereum network more useful than exchanges and in a fairly short time because defi is still just a baby, so how it will grow further remains to be seen.