Cryptocurrencies, stablecoins, centralized finance (CeFi) and decentralized finance (DeFi) players are developing at an extraordinary speed but currently exist in a galaxy far far away. As they speed from the outer galaxy of speculative use cases towards the mainstream galaxy, will they burn out upon entry or make a safe landing? Based on interviews with a dozen of cryptonauts, desk research, and market data, Celent examines the hype and then extracts the reality.
The hype is no surprise given skyrocketing growth in market capitalization. For example, the market cap of cryptocurrencies is nearing US$2 trillion, four times the market cap of the world’s top bank, J.P. Morgan Chase, and up from a quaint US$0.12 trillion at the end of 2018.
The reality, however, is that crypto has yet to breakthrough to the mainstream. A small share of individuals and institutions are holding digital assets and participating in DeFi. Today, DeFi is only available to digital asset holders and requires sophisticated understanding. Moreover, the use cases are speculative, that is, capital markets-related, not banking-related. The gravity of high returns commensurate risk still applies. Hence regulators are circling.
DeFi has, however, demonstrated that a better way to build financial services products—money legos—is possible through open source code.
Figure: The Money Legos of DeFi
Sources: Celent research, interviews, and analysis
In this report, Celent examines the trends and implications of cryptocurrencies, private sector stablecoins, and CBDCs. We compare and contrasts traditional finance, CeFi (e.g., Circle and Coinbase), and DeFi. In order to make CeFi and DeFi tangible, we profile Circle, Compound, and Square.
