Bitcoin gave us the chance to send and receive funds from anywhere in the world within a few seconds. Not just that, but most importantly, at an exceptionally lower cost without third-party facilitation.
In other words, cutting out the middleman, bringing censorship resistance and proof of work mechanism that confirms transactions on the Blockchain. That was the genesis of changing how the legacy financial system built for an industrial age persists in an information age.
However, the launch of Ethereum in 2015 took the world a step further by instituting a new epoch of sound and seamless financial services unparalleled in human history. Ethereum, a 2nd generation Blockchain that allows decentralized apps to be developed has become a total game-changer.
The advent of Decentralized Applications (dApps) deplored on Ethereum has evolved into a comprehensive industry with far-reaching outcomes and phenomenal possibilities for everyone, irrespective of geographical jurisdiction. More so, the launch of the Maker Protocol in 2017 by Rune Christensen set the pace for a decentralized future of financial services.
Decentralized Finance, commonly known as DeFi, no doubt, is the fastest-growing sector in the Cryptocurrency industry at the moment. Its rapid growth and innovation in little more than two years of offering financial freedom to whoever cares to be part of this re-evolution are stunning.
Innovative Financial Products
From Savings, Lending, Borrowing, Derivatives, Liquidity Pools, AMM, Non-Custodial Wallets to DEXs, Yield Farming, Bonds, Asset Management, Games, and Insurance, the Blockchain has introduced some impactful financial instruments for individual wellbeing.
Thanks to DeFi, Centralized Exchanges (CEXs) built for a decentralized domain like Cryptoshere with its dare outcomes that stunt the industry are giving way to Decentralized Exchanges (DEXs). The repeated hacking incidences of exchanges discourage many from joining the movement.
These colossal alterations are associated with features like robust security, Liquidity Providers, Arbitrage, Staking, Governance, and others. It has provided a permissionless environment, where anyone can be a part of the global financial system short of entry barriers and gatekeepers.
Additionally, the new drift has become the ideal solution to empowering individuals from not surrendering their private keys to centralized platforms and entities. By pioneering Non-Custodial Wallets, which enables transactions without third-parties, people can maintain control over their money in line with the cardinal principle of ‘Your Keys, Your Coins’.
Modern Agriculture, well known as Yield Farming, is another stimulating and well-adopted fallout of the DeFi fad you can’t overlook in any discussions under this field. Automated Market Making, the mechanism of allowing digital assets trading in a permissionless and spontaneous manner by employing Liquidity pools and Liquidity Mining, has become an integral part of earning a passive income in the Crypto space, bringing substantial changes to how we invest.
There are prominent schools of Thoughts in the Blockchain realm that think that DeFi can deliver true decentralization to all. Yet, others regard it as the elixir to the debt-ridden dysfunctional legacy financial system.
Growth of DeFi
Of course, the sector is the fastest growing in the entire Blockchain space. In the past week, the Total Value Locked (TVL) in DeFi, which counts as a projection of the cumulative rate of assets entrusted to the DeFi ecosystem, is over $88 billion.
The above estimate comes from just 100 projects listed on CoinMarketCap.com, with the top five accounting for more than $45 billion. Uniswap, obviously one of the most vital entities in the DeFi domain and the market leader, boasts a total market capitalization of well above $17 billion.
Impressive enough, some of these projects are less than two to three years old, with many under a year. The exponential growth of DeFi protocols within the shortest period indicates good things to come from the stable of Decentralized Finance.
Although 2020 is now in the annals of history as a terrible year, many will agree it was the period they heard about DeFi. While Corona Virus was ravaging the world in a manner so devastating, DeFi silently rose into prominence at the blind side of the mainstream financial world.
This development was a strong statement symbolizing a medium for transformation and the route to a promising future for the world. Following the launch of liquidity provision by Synthetix in the third quarter of 2019, the device gain momentum in 2020, with dozen other projects coming out with features of that nature.
From January to December 2020, the TVL surged from $671 million to $13.95 billion. Arguably, the billow emanates from yield farming and liquidity pools which were a novelty at the time.
Further, the lending syndicate had an extensive swelling, especially in the borrowing dimensions. The division burgeoned from $920 million to $3.57 billion, with Compound leading the market, followed by Maker and Aave.
The debut of liquidity mining brought about the rise of decentralized exchanges, an element many have been waiting for in the Cryptocurrency market. Most of the credit goes to Compound and again Uniswap for liquidity mining and the launch of the native token, UNI, respectively.
At the end of 2020, the trading volume of Decentralized Exchanges hit an annual high of almost $28 billion, solving the liquidity problems that have beset the DEX market. With this, the nagging unattractiveness of DEXes in terms of low liquidity now belongs to the past.
The Future Of DeFi
With DeFi, the possibilities are endless as areas like the tokenization of real-world assets like real estate, governance, insurance, among others, are not yet in play, at least amply. Shortly, the rise and rise of DeFi will affect more industries around the globe.
After all, every industry can utilize tokenization since owning a token function as a title to the underlying asset. The trend is just the beginning, as more innovations are on the way coming.
Notwithstanding the advantages that DeFi brings to the ecosystem, it has some enigmas and hurdles to overcome. For a brighter future and sustainability, there is the need for the system to rely on sound and robust data devoid of exploitation to create limited vulnerability by malicious actors necessitates the installation of fundamental attribute tools.
Similarly, the urgency to enhance timely transactions persists amidst the crucial points to accomplish broader acceptance and maintenance. This factor mostly hinges on the implementation of the Ethereum Improvement Proposal 1559.
Without any uncertainty, DeFi has come to stay, and there is more in store for the world. Don’t be left out, do your due diligence and join us in making the planet a better place, leveraging Blockchain technology.
About Global DeFi (GDeFi)
We are building a DeFi solution that combines features that are well-adopted in the industry with innovative concepts and features currently missing in the market. Examples are an integrated Marketplace called Global Swap and many other benefits that make GDEFI a one-stop-shop for everything related to the industry. We are also the first project to educate our community about Decentralized Finance, and we are building the broadest Knowledge Base with everything DeFi related.