DeFi 2.0 poised to defy expectations this summer |
Sounds like you’re talking about DeFi 2.0, but it’s actually a new type of dampener that’s poised to defy expectations this summer. Like its predecessor, DeFi 2.0 uses a unique combination of synthetic materials and dampening oils to absorb shock without creating noise or reverberation. But DeFi 2.0 has a few tricks up its sleeve.
The cryptocurrency market may be in the gutter at the moment, but a new wave of projects is on the verge of launching that may just turn things around. Crypto enthusiasts have been waiting for nearly a year for the launch of DeFi 2.0, a major upgrade on open finance that will introduce a plethora of new financial products that will expand the range of assets that developers can build around, making crypto more than just a store of value.
Before the summer of 2020, DeFi was known to virtually no one. This was understandable as the TVL at the time was less than a billion dollars, which is a market capitalization that even a meme coin can surpass in a few months. Since then, from May 2020 to May 2021, a completely new financial infrastructure has been created, with an impressive growth rate of more than 7 250%.
But even today, with $68 billion in value added and an estimated 2 million users (unique addresses), DeFi is a drop in the bucket compared to the centralized, global finance we know. In other words: Decentralized finance, which uses blockchain and smart contracts to eliminate corruption and brokerage fees, accounts for just 14% of the market capitalization of a single bank like JP Morgan.
Still, it would be foolish to measure DeFi in terms as crude as the amount of money he now has locked up. Even JP Morgan would not agree with this approach. Recently, the world’s largest bank announced that it considers DeFi to be its main competitor:
ETH should outperform BTC over the long term – JP Morgan pic.twitter.com/FCsFZ05i5S
– Document Ethereum (@DocumentEther) April 28, 2021
Ethereum is largely responsible for creating DeFi from scratch. While there are other blockchains capable of running smart contracts, Ethereum has gathered a critical mass of developers and dApps (smart contracts) over several years to get DeFi to the state it is in today. There is no doubt that Ethereum has suffered a major setback due to rising fuel prices, which has allowed Binance’s blockchain to take over its traffic, but again this is a temporary hurdle that will soon be overcome.
Obstacles inherent in the implementation of the FSS
Given WiFi’s relatively high barrier to entry, this underscores its current success. Although hundreds of millions of people have been introduced to the concept of cryptocurrencies through bitcoin, that understanding remains largely superficial. The DeFi ecosystem is much more complex and includes concepts such as :
Automated market maker (AMM)
Agriculture or cash generation
DAO (Decentralised Autonomous Organisations)
dApps or smart contracts
While all of these elements are easy to understand on their own, they build on the financial knowledge you already have. Unfortunately, an analysis of consumer financial literacy found that three out of five Americans do not stick to their budgets, seven out of 10 live paycheck to paycheck, and four out of five in the 18-35 age group fail the test of financial literacy. More: More than half of Americans notice stress when they think about finances, according to a 2018 FINRA survey.
This in itself is a very important psychological hurdle to overcome, because it involves a willingness to learn new information about a whole new type of finance – DeFi. After all, if centralized finance is already causing so much stress, what about the experimental, intrusion-prone system?
In addition, potential users will be faced with a plethora of altcoins and DeFi protocols. You could even be tempted by alternatives to Ethereum that aren’t truly decentralized, as many believe Binance Smart Chain (BSC) is, as it only has 21 network validators, compared to Ethereum’s more than 100,000. So when we think about implementing DeFi, we need to have realistic expectations.
That said, it’s safe to say that DeFi isn’t going anywhere. The ecosystem brings serious benefits, even if it takes some time to integrate it into the world. However, the DeFi already works with the existing financial infrastructure. Thus, even the world’s leading forex brokers offer access to cryptocurrencies via CFDs and other derivatives. Small business payment processing software like Wave now allows payment methods that accept cryptocurrencies. Such interfaces provide DeFi with tracks that are not yet mastered.
The factors that determine the FTE are reinforced
When a new technology is introduced, its ultimate commercial success depends on both external and internal factors. Fortunately for the DeFi, external factors are more favorable than ever for growth. In the aftermath of the pandemic, the world’s largest central banks – the Federal Reserve and the European Central Bank (ECB) – did their best to increase the money supply and discourage saving.
While the US Federal Reserve has set an interest rate close to zero, the ECB has been dealing with negative interest rates since 2014. Central banks act in this way to stimulate investment and capital flows rather than blocking money in savings. The problem is that we are now in an era of economic suspension – a lock-in – that has reduced the flow of capital to many sectors of the economy.
In short, people are under a lot of negative pressure to accept the DeFi alternative:
Devaluation of the fiat currency.
Negative interest rates.
In Germany, one of the EU’s leading economies, it is estimated that at least 300 banks are in the negative interest rate zone and charge customers to keep them in savings accounts. At the same time, the opportunities to spend this money are diminishing as a result of store closures. For example, the German central bank reported an 850% increase in household savings in bank accounts, from $215 billion last year to $2.08 trillion this year.
As we have already seen with the Ethereum gas fees that caused the exodus of PancakeSwap from BSC, the financial incentives cannot be underestimated. Instead of negative interest rates, the DeFi segment offers a range of annual percentage returns (APRs) unthinkable in the traditional banking sector, ranging from 5% to 15%. In fact, this region is quite conservative.
The DeFi protocol that fueled the DeFi explosion last summer with the introduction of an AMM – Uniswap – comes this week, on the 5th. May, release of a v3 update. This revolutionary upgrade includes a higher level of customization to increase yield in terms of concentrated liquidity and capital efficiency. Meanwhile, Ethereum – the backbone of DeFi – is poised to become scalable and cheap, thanks to its transition to proof-of-stake, layer 2 and sharding.
These updates will be phased in, with the Berlin Fork already completed and the London Fork on the way, which will change gas and mining fees in Ethereum. As a result, we see a drastic reduction in ETH gas costs, reducing congestion and freeing up more lanes for DeFi travelers to use their savings.
Source : ycharts.com
DeFi – evolved but still wild
The pursuit of high annual returns is inevitably accompanied by high risk. Exploitation of vulnerabilities, theft of crypto assets and hacks have been all too common in the past year. The main reason for this is enthusiasm rather than caution, both among developers and users. As a result, it has facilitated the adoption of code audit practices in the DFi ecosystem.
For example, the ambitious Equilibrium project, which offers pooled lending, decentralized trading and synthetic asset creation, is looking for external code auditors. The fact that this is happening on Polkadot, Ethereum’s competitor as an interoperable blockchain, suggests a welcome trend of code review. The Smart Contract Security Alliance, a coalition of blockchain audit companies to develop and implement security standards for smart contracts, has already been formed.
In addition, there are a number of DeFi insurance protocols in case of a hack: Nexus Mutual, Cover Protocol, Opium Insurance, to name a few. This gives us better conditions than last summer: Near zero or negative interest rates, a rise in Ethereum and Uniswap, a richer ecosystem thanks to NFTs, better encryption and insurance practices.
Ethereum: +200% Range
MasterCard : +12%
Visa : +6%
American Express : -18%
Western Union : –
JP Morgan : -28%
Bank of America : -32%
Citigroup : -46%
Wells Fargo : -58%
– John Erlichman (@JonErlichman) October 21, 2020
Given these factors and current trends, it’s hard to believe that DeFi will experience less explosive growth by the end of next year.
Guest article by Shane Neagle of The Tokenist
Shane has been an active supporter of the decentralized finance movement since 2015. He has written hundreds of articles on the development of digital securities – the integration of traditional financial securities and distributed ledger technology (DLT). He remains fascinated by the growing influence of technology on business – and everyday life.
Read more → read
Gaining an advantage in the crypto asset market
As a paying member of Edge, you have access to a deeper understanding of cryptocurrencies and context in each article.
Join now for $19/month View all benefits
Published in: DeFee, guest note
Do you like what you see? Sign up for updates.
This source has been very much helpful in doing our research. Read more about inverse token and let us know what you think.