“De-Fi”, decentralized finance has been the main player, in the economic sector during the year 2020, on the blockchain platform. With the Covid-19 pandemic ravaging the planet through the past 12 months the cryptocurrency market has been taking over the nervous investors from missing out on the carrot at the end of the stick. The Total Volume Locked (TVL) of De-Fi, which represents the dollar value of assets, passed the $1 billion mark in Feb 2020, closing out the year above $13 billion. This is a 2,000% growth in 11 months.
The upward trend of De-Fi in 2020 provides ample food for thought to what may be expected to dominate the blockchain platforms in 2021.
Bitcoin, Ethereum, Stablecoin, and other cryptocurrencies have been dominating the arena towards the end of 2020. Scalability has often been a major issue with blockchain and De-Fi seems to be providing the perfect storm. The cost of moving tokens between currencies, ranging from $5 to %30, has always been the downside in inter-cryptocurrency trading. This is the main reason why cross-chain technology will surge as one of the big players in 2021. Cross-chain technology allows assets from one blockchain to be represented on another.
The biggest craze to grip blockchain in 2020 was liquidity mining, also known as yield farming. It is an incentive driven methodology that encourages cryptocurrency asset holders to lock their tokens in decentralized networks. This effectively bootstraps the protocol, providing the necessary liquidity required for it to function.
Liquidity mining became headline news in June 2020 when lending platforms launched compound governance tokens through token-based treasury management. Lenders and borrowers on became eligible for daily distribution of these compound tokens, and as the price of these tokens increased, so did the rewards.
In terms of direct competition, it’s more likely that the lines between centralized finance and decentralized finance will gradually begin to blur. The understanding of finance in the future will be quite different from what it is to today.
One of the interesting areas that offer great potential for De-Fi is for businesses to better manage their monies. While unspent capital is wasted in low-interest FD’s, in the traditional banking sector, De-Fi offers the opportunity for small businesses to better manage their cash flow.
There are a number of obvious ways that De-Fi can improve the business banking experience. It will not only prove to be faster and cheaper than traditional banking but at the same time it will open up new possibilities for improved treasury management. Liquidity mining is one way that businesses could put their unused capital to greater use. Lending is another. These options give businesses, even small operators a much higher return on their capital reserves. It actually turns traditional banking logic on its head somewhat, where unspent capital is often viewed as a negative.
De-Fi is certainly taking control of the economic landscape across the globe.