While 2020 will be considered one of the toughest countries in the world for many years, the success of the decentralized financial sector is a major milestone for the cryptocurrency community.
In the midst of the ongoing COVID-19 pandemic, economies have been shaking and governments and financial institutions have had to put in place drastic monetary policies and stimulus packages to revitalize the global market. Because of this uncertainty and monetary policy, alternative asset classes such as cryptocurrencies have become an attractive destination for investors, companies and institutions.
2020 was a big year, especially for Bitcoin (BTC), as the standout cryptocurrency reached levels not seen since its infamous bull run in late 2017. Perhaps the fact that Bitcoin broke a new record for Bitcoin is meaningful total market capitalization.
That phase of success was accompanied by a DeFi boom that has drawn some parallels with the initial craze for coin offerings that emerged when Bitcoin hit the $ 20,000 mark for the first time in history three years ago.
DeFi is his own beast, however, and put up some impressive numbers in 2020. Its popularity has increased due to a surge in activity and appreciation in the Ethereum ecosystem and the larger blockchain and cryptocurrency space. At the same time, there are concerns that the DeFi area will result in a large number of users losing money on projects that for whatever reason do not work. This can later affect the further development potential and the overall picture of the sector.
The state of the room
The DeFi space has seen some significant milestones in 2020 as users have searched for the returns touted by various platforms and protocols. August 2020 was a significant milestone for the DeFi space as the market was worth more than $ 7 billion, tied to the platforms that make up the ecosystem, and is currently over $ 14 billion.
The surge in DeFi applications has also fueled the rising price of Ether (ETH) in recent months as investors moved into the earnings sector. At the time, decentralized applications running on the Ethereum blockchain made up just under 50% of the total value of the Ethereum ecosystem.
As this data shows, the utility and value of DeFi platforms is demonstrated by the amount of value that is transferred across different platforms. With this type of interest, the relevant question is: What will promote the acceptance and increased use of DeFi projects and products in the future?
Alexey Koloskov, CEO and co-founder of DeFi liquidity provider Orion Protocol, told Cointelegraph that a key cog in DeFi’s future will be integration with centralized exchanges and platforms. Koloskov believes that DeFi projects and decentralized exchanges in particular have emerged to allow traders to access liquidity while retaining ownership of their assets. However, they often lack the liquidity, trading pairs, user experience, and features that traders are looking for:
“Crucial to the sustainability of the industry will be access to the benefits and opportunities across the market, but in a completely decentralized way: the most valuable opportunities come from hybrid solutions that bridge the gap between the centralized and decentralized world of crypto. “
Coping with hard perceptions
While the usefulness of DeFi platforms has been demonstrated by the tremendous value added to space, this has also been an area of criticism for the ecosystem. Yield farming has become a hot topic as cryptocurrency users with significant holdings of various tokens can generate substantial returns by using their holdings to generate income.
While this has brought some users a decent return on their investments, many more have been plagued by half-baked projects and downright scams to capitalize on the space’s hype. It is the proverbial downside of DeFi and is not lost to our industry experts. Even if the DeFI projects appear to have come from prominent developers or are on the wave of social media hype, investors could still cry over their lost funds.
Goel was more optimistic about the crop farming phenomenon, suggesting that the positive results outweigh the projects that were poorly completed for some users: “Most DeFi projects are very young and at this stage it is important that they Build up liquidity and liquidity Kickstart an aligned and committed community. He added that “Users are making money on these projects, but this plays a huge role in getting some initial traction for the project when they have a legitimate product. For the most part, it’s a win-win situation. “
Koloskov agreed that DeFi has become synonymous with productive agriculture, and what started as a boon to the attraction of capital to space clouded the sector due to unsavory market practices and scams: “The execution turned out to be little more than novel names, coding and viral marketing – centered around speculative value, with little consideration of the actual utility value of useful technology. “Koloskov noted that this was similar to what led to the demise of the first coin offerings, and that it is slowly happening in the DeFi room:
“DeFi’s open source nature enabled a multitude of ‘Me too’ projects, but with the goal of ending fraud rather than building a decentralized future of finance. But while the “bubble” may show signs of bursting as a result, the technology on which it is based remains intact: democratized access to global finance. “
Weigh the hype
In view of the potentially negative perception of productive agriculture in the DeFi area, it is still undeniable that the ecosystem offers users added value. DeFiPulse data estimates that the value tied to various projects and platforms in the ecosystem has increased exponentially. Goel admitted that the hype surrounding DeFi may not match the real benefits that various platforms and projects offer. He added:
“DeFi protocols are changing the way finance is defined today. People are making billions of dollars worth of digital assets using open source protocols. Finance is being democratized, and this is only the beginning of a new generation of community-run companies. “
Meanwhile, Koloskov believes that the utility of DeFi platforms means that anything can potentially be used as a token that could disrupt the global financial sector and various industries. He affirmed that industry-to-industry collaboration will be critical to the future of DeFi and a new financial system: “A successful decentralized financial system is not measured by its ability to exist separately from centralized financial institutions, but by its ability to act as a Mediator between the worlds consumers know and the immature world of DeFi. “