The decentralized financing was a ticking bomb when it finally exploded in 2020. From robot market participants to the current craze for liquidity mining, DeFi has grown significantly over the past year.
Most of the decentralized financial applications are distributed on the Ethereum blockchain, bringing billions of dollars into the network and pushing them to an operational limit. While it may seem like the strength of the underlying network is the only thing holding back DeFi, Ethereum is not relaxing either.
As Ethereum 2.0 prepares for the transition, a lot is coming for 2021. Both DeFi and Ether (ETH) are doing very well, with Ethereum’s private token recently recovering full-time highs and even peaking at $ 2000.
While some in the community believe that this pump is the result of a bubble similar to the original coin supply boom of 2017, there are many reasons to believe that it is not.
DeFi brought a breath of fresh air to the cryptocurrency area and spawned countless new tokens that revolutionized decentralized lending and lending services. Short-term Yam Finance, which sought to simplify the growth process and transform blockchain management into a business model, quickly became one of the fastest-growing platforms in the DeFi space.
Projects such as Uniswap have revived the concept of decentralized exchanges using an automated market maker model. This system makes it possible to value trades without relying on counterparty liquidity. Instead of using order books, AMM estimates assets by using the proportion of tokens in the liquidity portfolio to determine supply and demand.
The growth in Uniswap has driven the DeFi engine for some time, with a daily trading volume rising from around $ 1 million to $ 1 billion between July 2020 and September 2020. This means that transactions are made and settled directly on the network, and this has been one of Ethereum’s most prominent features.
This has led to a sharp increase in the number of smart contract calls in Ethereum, reaching full-time heights, and the creation of an increasingly paid token economy. While the unstable DeFi ecosystem has offered higher levels of efficiency and more automation features, it is still more complex than traditional offerings.
This is a major issue that DeFi needs to address before much can be adopted. The act of buying and selling cryptocurrency really needs some work from a consumer perspective, but in its current state, DeFi is still pretty much more of a figure. Companies like Yearn.finance have brought algorithmically managed wallets to DeFi, but there is still a lot of work to be done.
“Crop planting is not sustainable, but it helps start the industry and attract developers in the short term,” Ron Christensen, veteran founder of DeFi MakerDAO, told Cointelegraph, adding:
“Once the markets calm down, the next step for DeFi will be to integrate with conventional financing and code real assets so that they can be used in DeFi protocols on the network.”
He also mentioned that DeFi is currently completely dependent on the Ethereum platform, especially as it depends on the interconnections between existing DeFi and ETH applications as an important source of security and stability. However, there may be other challenges in Defi’s path to growth.
This view is shared by many members of society. According to Ilya Polosukhin, CEO of Near Protocol, a blockchain that enables decentralized applications and interacts with Ethereum, DeFi can continue to grow on Ethereum.
“Most applications are designed to work with and circumvent current restrictions, and will only have moderate success in other networks,” he said. “It’s not just about the apps themselves, but the whole ecosystem of users, resources, other apps and integrations.” However, there may be other challenges in Defi’s path to growth.
These issues include the launch of Eth2 and its potential impact on decentralized financing. MakerDAO founder said this is likely to have less impact than expected with fewer new DeFi applications. “Level 2 scalability solutions with highly secure bridges are likely to enable DeFi to be more retail-focused,” he said.
Introducing more complexity is a cumbersome end user, especially with the raw UI / UX systems that seem to be ubiquitous. However, this will allow DeFi-smart contracts to interact and transact automatically without human assistance across multiple platforms.