U.S. Leads in Global Uptake of Crypto Decentralized Finance

by Tor Constantino | Published on Oct. 4, 2021

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While emerging nations lead global cryptocurrency adoption, the U.S. and other developed nations are leading in crypto's decentralized financing.

"The investor of today does not profit from yesterday's growth."

–Warren Buffett

There's a strong sense of irony embedded in the above quote from the Oracle of Omaha. Buffett's statement implies the need for investors to pursue what's new today rather than what worked yesterday.

What's ironic is that Buffett isn't a fan of cryptocurrency and intentionally avoids virtually all investments in new types of technology in favor of stodgy consumer brands like Coke and McDonalds. While that's worked for the past 50 years or so, the future above-average investment returns (also known as alpha) will be driven digitally.

Even though Buffett hates Bitcoin and famously called it "rat poison squared," a new report from blockchain analytics firm Chainalysis finds that U.S. investors are leading the world in adoption of decentralized finance (DeFI) within the crypto-space.

DeFi deletes banking go-betweens for faster and cheaper funding

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DeFi is a blockchain-based form of banking that drives direct person-to-person borrowing and lending. It's unique because the transparent, tamper-proof ledgers of the blockchain enable smart contracts, which are small bits of software that complete DeFi transactions automatically when the pre-coded contract terms are met. DeFi eliminates the need for loan officers, credit checks, employment verification delays, and associated fees while providing the benefits of traditional banking without the barriers, speed bumps, and expense.

Despite Buffett's anti-Bitcoin bloviating, the Chainalysis Global DeFi Adoption Index finds that the U.S. leads the world in the pursuit of DeFi derived profits. Rounding out the top-10, country-level DeFi adopters are:

  • Vietnam
  • Thailand
  • China
  • The United Kingdom
  • India
  • Netherlands
  • Canada
  • Ukraine
  • Poland

Similar to its more generalized Crypto Adoption Index, the Chainalysis methodology to tabulate the DeFi index used three weighted, multi-variable metrics to rank the 154 countries studied. The data suggest that while basic cryptocurrency adoption generally is highest in emerging markets, DeFi adoption is strongest in high-income countries that already had substantial cryptocurrency usage, especially among traders and institutional investors.

Institutional "whale" investors are diving into DeFi

The DeFi index data show large institutional transactions, basically more than $10 million, accounted for more than 60% of all DeFi activity in Q2 of 2021, while less than 50% of crypto transactions crossed the $10 million threshold. This suggests that DeFi activity is disproportionately popular for bigger investors seeking alpha compared to baseline crypto.

It's interesting to note that the drivers of general programmable money adoption within emerging markets are acting out of necessity, to either preserve the value of their funds or engage in payments and transfers prohibited by their respective governments. Conversely, Chainalysis finds that it's experienced cryptocurrency traders and large investors seeking new sources of alpha across innovative tech that are the driving forces behind DeFi uptake. The researchers surmise that's why there seems to be greater DeFi adoption in more developed countries with entrenched cryptocurrency users.

Perhaps the question we'll need to answer in the future is whether retail and institutional investors across emerging markets follow in the DeFi steps made by hedge funds and institutional investors from developed countries. Who knows? Perhaps even Warren Buffett might toss soda and fast food in pursuit of digital-driven alpha some day.

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