While Ethereum’s use case for much of 2017 and 2018 was being a platform for launching initial coin offerings, the second-largest blockchain, second only to Bitcoin, has started to develop a potentially so-called “killer use case”: decentralized finance, better known to the cryptocurrency community as DeFi.
For those unaware, DeFi is a decentralized ecosystem made up of on-blockchain applications that can handle finance-related tasks — from issuing loans, managing investments, earning income from real estate, and so on and so forth.
While DeFi is not constrained to Ethereum — Bitcoin has its own DeFi ecosystem in the Lightning Network, as do other blockchains — finance on blockchain has become an integral part of Ethereum’s ecosystem and brand.
Case in point: there is now $1 billion worth of value (Ether, stablecoins, ERC-20 tokens, etc.) locked up in Ethereum-based smart contracts.
And fortunately for DeFi optimists, this figure is already turning heads.
Ex-Goldman Sachs Exec Gives Ethereum & DeFi His Thumbs Up
Raoul Pal, a former head of equities and equities derivatives at Goldman Sachs, was one of the first institutional traders to dive into Bitcoin, writing about and investing in Bitcoin at least as early as 2013.
While Pal was largely focused on BTC for the longest time, he is expanding his horizons.
In the January edition of the Global Macro Investor report, Pal wrote that he is getting “increasingly bullish on Ethereum,” adding that the asset is “silver to Bitcoin’s gold.”
The prominent investor specifically cited the adoption of DeFi, which he defined as the following:
DeFi includes digital assets, protocols, smart contracts, and DApps built on a blockchain. These use cases leverage of Ethereum’s flexibility and concentration of development, focus to help create these open financial ecosystems.
— Payom Dousti (@PayomDousti) February 5, 2020
Pal has explained in a number of commentaries and interviews that he sees a world in the future where everything is based on blockchain technologies, where there are cryptocurrencies like Ethereum and Bitcoin being used in a number of capacities.
DeFi on Ethereum could be a large part of this new world, leaving space for dramatic upside, which is what Pal was saying in the report.
Still More Interested in Bitcoin
While Pal is excited about DeFi and Ethereum, the investment he’s most excited about is Bitcoin. In fact, he recently argued that Bitcoin would be his first and foremost choice if he could only own one asset for the next 10 years.
In a to-the-point Twitter comment posted late last month, Pal said that he thinks Bitcoin is the perfect asset for him to hold for the next decade because it “encapsulates all of larger macro views,” referencing previous statements he made suggesting the world will turn to an alternative system of finance that will be digital. (Previously, the Real Vision executive said that Bitcoin is basically an option on the future of finance.)
If I could only own one asset for the next 10 years, it would be bitcoin $BTC It encapsulates all of my larger macro views and feels like the point on the far horizon we are headed to, in some shape or form. Yes, like gold too and many other things but BTC risk/reward beats all.
— Raoul Pal (@RaoulGMI) January 31, 2020
He added that from a pure risk-reward analysis perspective, Bitcoin “beats all.”
The former Goldman Sachs executive previously told prominent industry podcaster Stephan Livera that all popular asset classes are extremely expensive, except for Bitcoin and cryptocurrency.
Equities, he explained, are roughly at all-time highs, and are pushing extreme valuations for relatively little profit and potential.
Bonds aren’t much better, Pal opines, drawing attention to the “virtually zero yields” — and negative yields in some cases — that debt deemed safe provides.
Even real estate isn’t attractive, with the prominent investor calling this asset class “unaffordable”, adding that it makes even less sense to purchase homes because they’re trading near all-time highs.