- Ethereum has been the forerunner of the process and has locked up more than $3 million in DeFi.
- MakerDAO which holds more than half of the assets locked in DeFi, is currently the pioneer in the DeFi world.
- Liquidity is another major issue faced by the crypto market in general and the DeFi system in particular.
2019 was a year filled with ups and downs for the crypto community. But one thing which surfaced was the emerging popularity and potential of Decentralized Finances or DeFi.
Investments in DeFi are soaring, and as we move into the new year, it is essential to understand this developing trend. Thus, here are nine highlights of the open finance world that will keep you updated:
According to data by DeFiPulse, funds locked up in DeFi systems have increased from 290 million to $ 690 million in 2019. Ethereum has been the forerunner of the process and has locked up more than $3 million in DeFi. These debatably indicate that the expansion of DeFi assets may continue in the upcoming year as well and achieve massive growth.
Undoubtedly, MakerDAO which holds more than half of the assets locked in DeFi, is currently the pioneer in the DeFi world. But this does not mean that dark horses like Synthetix, one of the fastest-growing projects in 2019, should be ignored.
Its token SNX has increased its price by more than 30 times last year. Nevertheless, risks of unfortunate liquidity issue of token and the Oracle Machine loom over it.
Another exciting trend to think about is Maker’s move of slowly getting out of Ethereum. Though Ethereum is the house of DeFi, other public chain projects have begun cultivating their systems like Kava and Checker. Money On Chain is yet another project stemming out of the Bitcoin ecosystem, which has posed a challenge.
One of the major problems faced by DeFi is lack of new quality assets. 2020 expected to be the year for physical as well as off-chain assets to enter the system, be it through Maker multi-asset mortgage Dai (MCD) system, blockchain platform Centrifuge’s pilot projects or investment platform Real IT.
The compound is the project in the DeFi system that has added the cToken (including cDai, cETH, etc.). It thus opens immense possibilities for practicality and liquidity by allowing the past locked assets to flow through the ecosystem. This is just one part of the tokenized derivative gameplay which must continuously be monitored.
Insurance services and products are significant sub-areas arising in the DeFi space. Etherisc, CDx, VouchForMe, and KeeperDAO etc. based on smart contacts and ranges from thefts of private keys, attacks on exchanges to stolen wallets.
Liquidity is another major issue faced by the crypto market in general and the DeFi system in particular. Collaboration with the centralized world through a new hybrid between DeFi and CeFi saw as potential solutions with projects such as the decentralized exchange DDEX’s support to the centralized stablecoin USDT in addition to DAI.
DeFi is famous for its lesser barriers to entry alternative and for being a licence free model among other things. However, it also faces structural limitations. Unlike the traditional systems, DeFi does not have a legal mechanism to ensure that borrowers repay. This leads to excessive pledges and thus, low capital utilization.
Thus, the primary question is how to reduce loan mortgage rate and improve capital utilization. One way is to credit market DAO and share both loan risks and profits. Alternatively, one can depend on credit cooperatives.
However, as more ideas emerge, the system needs to look at the pros and cons before adopting a plan. Thus, this is by far the biggest challenge for the system in the coming years. Large scale development is possible in DeFi when concerns mentioned above addressed, and trends monitored continuously.