DeFi is growing rapidly on the Ethereum blockchain while allowing users to create financial applications without the need for third parties.

Among the most prominent and popular applications of decentralized finance are those that allow lending or borrowing a digital currency from an unknown third party from anywhere in the world.

Those using DeFi often have to secure some cryptocurrency as collateral in order to use these services, which prevents them from running away with the loaned money.

The amount of bitcoin, ethereum, and dollar-denominated stablecoins held in these decentralized protocols has also increased.

according to “DeFi pulseIt took two and a half years before the value-locked DeFi broke the billion-dollar mark.

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Soon, the value dropped to $600 million before rising again.

Then, after a sudden acceleration, on July 7, decentralized finance breached the $2 billion mark for the first time.

Now, just two weeks later, another billion dollars has been locked up in the DeFi ecosystem.

The industry is showing no signs of slowing down.

The current exponential growth of decentralized finance began when Compound launched, with this project becoming the second largest decentralized lending application.

The market for decentralized finance began to flourish when the Compound Project’s COMP token was distributed on June 15.

The COMP coin has brought a lot of attention to the industry.

It has also launched something called “return farming,” a controversial method that allows cryptocurrencies to be used to get more tokens.

DeFi applications reward those who provide liquidity by distributing tokens to them.

The more liquidity a person provides, the more tokens they will get.

Return farming is a practice that multiplies these rewards, but the problem is that the incentives clearly bring a large amount of capital into DeFi.

But what if everything collapses?

There are certainly concerns.

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Wrote Alex Larsen, a partner at Blockchain Capital, discussed in detail DeFi, that such token incentives carry risks.

And he said:

One can imagine a situation where an external protocol provides incentives, without any action on its part, which could lead to dangerous behavior in another protocol and ultimately result in back-to-back eliminations and user losses.

He added:

However, the process of battle testing with real money will eventually lead to solid systems with well-understood risks.

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