Are crypto treasury companies a threat to DeFi?

Strategy's latest Bitcoin acquisition, reported today, is 196 BTC for $22.1 million, bringing its total Bitcoin stack to 640,031 BTC.

This means that Strategy currently holds more than 3% of Bitcoin's supply that will ever exist.

But what does bitcoin have to do with DeFi right?

Nothing directly, since the Bitcoin network isn't smart contract compatible and cannot house decentralized applications in the way blockchains with native smart contracts compatibility can.

As such, it makes sense to look at an asset like Ether (ETH) of the Ethereum blockchain, which is home to much of DeFi value flow.

In the past 30 days, treasury companies have acquired over 740,000 ETH and they've cumulatively bought and currently hold 3,784,694 ETH (+countries holdings), which is 3.14% of ETH’s supply, worth over $15.8 billion.

It is no news that Ethereum is the largest DeFi market, even though much of it has been abstracted to the L2.

As a leading DeFi chain, its native asset is central to the stability of the decentralized finance ecosystem.

This is an over $500 billion asset native to a chain with an economic weight of over $980 billion, according to data from DefiLlama.

Buying ETH means investing in a nearly $1 trillion market, no wonder institutional players want to deploy and/or integrate with Ethereum right?

So how does this institutional interest, specifically treasury companies impact DeFi?

About 29.39% of ETH is staked on the beaconchain to secure Ethereum. This is the validators stake and is over 35.7 million ETH. This means that less than 85 million ETH (worth over $353 billion) is available in some form for purchase.

Now when I say “available” I don't truly mean supply that's up for sale given that much of it is probably locked in some contract across Ethereum's DeFi ecosystem for anything from lending to yield farming and beyond.

At the same time, this is a figure we can work with.

Right now, treasury companies don't own enough ETH to cause problems for Ethereum nor the larger DeFi ecosystem, but judging from growing interest in Ethereum, we can only guess that they'll own a lot more than today over the next couple years.

Does DeFi become less decentralized when that happens?

As much as this might feel like a complex question, it really isn't, simply because this is proof of stake that we are dealing with.

If ETH treasury companies come into holding significant ETH stake, their impact on DeFi will depend on:

– if said companies are vastly distributed in stake holding

– if Ethereum remains central to DeFi’s value flow (the fundamental security layer).

The threat crypto treasury companies pose to DeFi depends on their centralized stake control (individual or by proxy) and if the assets they hold majority stake is central to DeFi’s value flow.

If stake is distributed, they merely come in to be investors adding value to the ecosystem and enabling it to grow more decentralized.

If they hold a majority stake that centralizes any given chain, but said chain isn't the leading network for DeFi, then their threat is unique to the individual networks.

The way I see it, ETF issuers are more likely to act as a means to acquire majority stake in several chains than independent treasury companies.

Posted Using INLEO