A record year for DeFi, but can it break through negative perceptions around yield farming and pump and dump schemes?
While 2020 will be one of the toughest the world has collectively faced in many years, the success of the decentralized financial sector stands out as a major milestone for the crypto 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 to revive the global market.
As a result of this uncertainty and of monetary policy, alternative asset classes such as cryptocurrencies have become an attractive target for investors, companies and institutions.
2020 has been a great year for Bitcoin BTC in particular, as the preeminent cryptocurrency reached levels that had not been seen since its infamous bull run in late 2017.
Perhaps most telling is the fact that Bitcoin has broken a new one record for global market capitalization.
This period of success has been accompanied by a DeFi boom, which has drawn some parallels to the initial coin offering craze that accompanied Bitcoin as it approached the 20,000 mark for the first time in history about three years ago.
However, DeFi is its own beast and has garnered impressive numbers in 2020.
Its popularity has surged due to increased activity and movement of value in the Ethereum ecosystem and the larger blockchain and cryptocurrency space.
At the same time, there is concern that the DeFi space will lead to a large number of users losing funds on projects that do not work for some reason.
This can subsequently hamper any further development potential and the overall picture the sector is trying to build.
The state of DeFi space
The DeFi space has recorded some important milestones in 2020, as users have clamored to make use of the performances promoted by various platforms and protocols.
August 2020 marked a significant milestone for the DeFi space, as the market surpassed 7 billion in locked value on the platforms that make up the ecosystem, and is currently at a pinch of 14 billion.
The rise of DeFi apps also added some momentum to the Ether (ETH) price surge in recent months as investors moved up into the yield farming sector.
At that time, decCentralized applications running on the Ethereum blockchain accounted for just under 50 of the total value of the Ethereum ecosystem.
As these data show, the usefulness and value of DeFi platforms is evident from the vast amount of value that is channeled to various platforms.
With this type of interest, the pertinent 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 Cointelegraph that a core 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 give traders access to liquidity while retaining ownership of their assets, but they often lack the liquidity, trading pairs, user experience, and features that traders looking for It is critical to the sustainability of the industry to provide access to benefits and opportunities across the market, but in a fully decentralized way the most valuable opportunities will come from hybrid solutions that bridge the gap between the centralized and decentralized worlds of crypto.
While scaling remains a challenge that is slowly being resolved, two main hurdles need to be addressed to drive usage and improve offerings of DeFi projects in user experience and transaction scaling.
Projects need to further simplify their application user experience to make it easier for the 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 sheer amount of value that floods the space, this has also been a critical area for the ecosystem.
Yield farming has become a hot topic, as cryptocurrency users with significant holdings of various tokens can make considerable profits by betting their holdings for yield.
While this has seen some users make a good return on their investments, many more have been fooled by half baked projects and outright scams that seek to capitalize on the hype of the space.
It's the proverbial dark side of DeFi, and our industry experts don't miss it.
Also, even when DeFI projects appear to come from prominent developers or join the wave of social media hype, investors could end up crying over the loss of funds.
The positives outweigh projects that have ended badly for some users
Most DeFi projects are still very young, and at this stage, it's important for them to jump-start liquidity and drive an aligned and engaged community.
The users are making money from these projects, but that plays an important role in helping bring initial traction for the project if they have a legitimate product.
People are transacting billions of dollars worth of digital assets on protocols that are open source.
Finance is democratizing and this is just the beginning of a new generation of community-driven businesses.
Meanwhile, the usefulness of DeFi platforms means that anything can potentially be tokenized, which could disrupt the global financial sector and various industries.
The cross-industry collaborations will be key to driving 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 one that is capable of acting as an intermediary between the worlds that consumers know and the immature world of DeFi.
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