While 2020 will remain one of the most difficult the world has faced collectively for many years, the success of the decentralized financial sector stands out as a major milestone for the cryptocurrency community.
Amid the ongoing COVID-19 pandemic, economies have shaken and governments and financial institutions have had to introduce drastic monetary policies and stimulus packages in order to revive the global market. Due to this uncertainty and this monetary policy, alternative asset classes such as cryptocurrencies have become an attractive target for investors, businesses and institutions.
2020 has been a big year for Bitcoin (BTC) in particular, with the preeminent cryptocurrency reaching levels not seen since its infamous bull run in late 2017. Perhaps more telling is the fact that Bitcoin has broke a new record for overall market capitalization.
This period of success was accompanied by a boom in DeFi, which drew parallels with the initial coin supply craze that followed when Bitcoin first approached the $ 20,000 mark for the first time. the story about three years ago.
DeFi is its own beast, however, and has established impressive numbers in 2020. Its popularity has grown due to increased activity and value transfer in the Ethereum ecosystem and the larger blockchain space. and cryptocurrency. At the same time, there are fears that the DeFi space may lead a large number of users to lose funds in projects that are not working for some reason. This can subsequently hamper any potential for future development and the overall image that the sector is trying to build.
The state of space
The DeFi space recorded significant milestones in 2020, as users demanded to use the yields touted by various platforms and protocols. August 2020 marked a milestone for the DeFi space, as the market has passed the $ 7 billion in value stuck in the platforms that make up the ecosystem, and currently sits at just over $ 14 billion. billions of dollars.
The rise of DeFi applications has also added some boost to the price of ether (ETH) in recent months, as investors have moved into the yield farming business. At the time, decentralized applications running on the Ethereum blockchain accounted for just under 50% of the total value of the Ethereum ecosystem.
As this data shows, the utility and value of DeFi platforms is clear to see by the amount of value that is funneled into various platforms. With this kind of interest, the relevant question is: What will drive the adoption and greater use of DeFi projects and products in the future?
Alexey Koloskov, CEO and co-founder of liquidity provider DeFi Orion Protocol, told TBEN that a central cog in DeFi’s future will be integration with centralized platforms and exchanges. Koloskov believes DeFi projects and decentralized exchanges, in particular, have emerged to provide traders with access to liquidity while retaining ownership of their assets, but they often lack liquidity, trading pairs, user experience and features sought by traders:
“For the sustainability of the industry, it will be essential to provide access to benefits and opportunities in the market, but in a fully decentralized manner: the most valuable opportunities will come from hybrid solutions that bridge the gap between the centralized and decentralized worlds. cryptography.
Ish Goel, founding member of the DeFi PlotX prediction marketplace, told TBEN that while scaling continues to be a slowly resolving challenge, two major hurdles need to be overcome to boost usage and improve performance. DeFi projects offer in user experience and transaction scaling. , adding, “Projects have yet to simplify their application UX to allow an average user to interact with non-custodial community protocols that never existed before. An average user does not want to use MetaMask. “
Address difficult perceptions
While the usefulness of DeFi platforms has been proven by the amount of value pouring into the space, it has also been a subject of criticism for the ecosystem. Yield farming has become a hot topic, as cryptocurrency users with large holdings of various tokens are ready to earn large returns by staking their holdings to earn yield.
While this has allowed some users to make a net profit on their investments, many more have been robbed by half-baked projects and straightforward scams seeking to capitalize on the space hype. This is the proverbial dark side of DeFi, and it is not lost on our industry insiders. Plus, even when DeFI projects appear to come from top developers or take inspiration from the wave of social media hype, investors could still end up in tears because of their lost funds.
Goel provided a more optimistic view of the yield farming phenomenon, suggesting that the positives outweigh projects that have ended badly for some users: “Most DeFi projects are still very young, and as of yet. stage, it is important for them to prime liquidity and revive an aligned and engaged community. He added that “users are making money on these projects, but it plays a big role in helping to bring initial traction to the project if they have a legitimate product.” It is a win-win in most cases. “
Koloskov agreed that DeFi has become somewhat synonymous with yield farming, and what started out as a boon to attracting capital to space began to tarnish the sector due to unsavory market practices and d ‘Scams: “Execution turned out to be nothing more than new names, coding and viral marketing – centered on the speculative value of the price with little regard for actual value in use thanks to useful technology. Koloskov noted that this was similar to what led to the demise of the initial coin offerings and is slowly happening in the DeFi space:
“The open-source nature of DeFi has enabled a plethora of ‘me too’ projects, but with the goal of exit scams instead of building a decentralized future of finance. But while the “bubble” may show signs of bursting as a result, the technology behind it is here to stay: democratized access to global finance. “
Weigh the hype
Having addressed the potentially negative perceptions of yield farming in the DeFi space, it is undeniable that the ecosystem brings value to users. Data from DeFiPulse estimates that the amount of value blocked in various ecosystem projects and platforms has grown exponentially. Goel admitted that the hype around DeFi may well fall short of the real utility provided by various platforms and projects. He further added:
“DeFi protocols change the definition of finance as it stands today. People trade billions of dollars in digital assets over open-source protocols. Finance is being democratized, and this is just the start of a new generation of community-driven businesses. “
Meanwhile, Koloskov believes that the usefulness of DeFi platforms means that anything can potentially be tokenized, which could disrupt the global financial sector and various industries. He reaffirmed that cross-industry collaborations will be essential to drive the future of DeFi and a new financial system: “A successful decentralized financial system will not be measured by its ability to exist separately from centralized financial institutions, but by that who is able to act. as an intermediary between the worlds that consumers know and the immature world of DeFi. “