Crypto, DeFi and NFT's! Where to begin?
Where to begin? I asked myself this question when synthesising the latest news in the Crypto, DeFi and the NFT space. It's pretty overwhelming trying to keep on top of things.
In the past week, Shiba Inu, the meme coin, gained 45% on Wednesday, making it the 11th biggest crypto with a market value of $30.9Billion. That's a rise of 710% in one month and 7Million percent over 14months. That increase turned one person's trade of $8000 into an estimated $5.7Billion over that same period.
In the DeFi space, Tron founder Justin Sun withdrew billions of dollars of crypto from DeFi lending platform Aave's lending pools. The liquidity he removed comprised of ETH, WBTC, USDC, USDT, and TUSD. According to Defi Lama, this withdrawal created FUD in the market, and Aave has seen their TVL (Total value locked) reduce by almost 27% in the past week. Initial reports suggested Sun withdrew his funds because of a potential exploit in the protocol. This move prompted Aave to suspend lending, borrowing, and some swaps to prevent the collapse of the protocol. If none of this makes sense to you, don't worry. I will try to explain this in more detail further on.
Finally, and probably the biggest news of the week came from- Facebook, the most prominent social network globally with an estimated 2.9Billion monthly active users (MAU)- they will be rebranding to Meta- A Social Technology Company. With this announcement, they have committed to invest $10Billion in developing the metaverse.
What does this all mean to you?
Well, if you're not in this space, probably not a whole lot. Apart from this, Crypto, DeFi and NFT's are no longer a part of an underground society that meets in chat rooms and trade a couple of hundred dollars here and there. Instead, it's now become mainstream, and people are investing not hundreds but billions of dollars in building out the ecosystem. So I argue the best time to learn about this space was yesterday; the second-best time is today.
Blockchain and Crypto
Let's get started by explaining some basic concepts and ideas. Firstly, *crypto; to understand crypto, you must first understand the basics of *blockchain. A blockchain is a distributed, immutable ledger that facilitates the process of recording transactions and tracking assets across a group of *nodes.
- *Blockchain: Think about this as an online document; if you change something in the paper, everyone will see that change, and if the majority of the people don't agree with it, they will reject that change hence voiding it.
- *Nodes: A node is a computer to keep a history of all transactions. You can think of these like people. They verify and store transactions.
- *Crypto: Cryptocurrency, therefore, is a form of *digital asset based on a network distributed across many computers- a blockchain.
- *Digital Asset: A digital asset is a piece of content stored in a digital file format.
Why is the Shiba Inu story interesting?
Shiba Inu was initially built somewhat as a joke or what some people call a meme coin. The founder of Shiba Inu's called the coin "an experiment in decentralised spontaneous community building". This effectively means the coin only has as much value as the community that supports it. Notwithstanding, Shiba Inu has a total supply of 1 quadrillion coins. These types of projects can be hazardous for retail investors and give crypto a lousy name. However, the caveat here is that the founder now has enough resources to develop the protocol's utility. What started as a parody is now worth $5.7B. The crypto space is unique; people build communities first and the product second; it's exhilarating to watch and also super risky at times.
DeFi (Decentralised Finance)
Now that we understand the very basic concepts of crypto and blockchain, let's talk about DeFi (Decentralised Finance). DeFi is an alternative financial system that leverages blockchain technology, meaning a peer maintains a system that no one centralised institution controls. So in this instance, rather than go to a traditional banking institution to take out a loan, lend money or exchange one currency for another, you would utilise DeFi instead. These transactions are facilitated by Dapp's (decentralised applications) sitting on a blockchain network like Etheurm.
Why is DeFi interesting?
DeFi removes significant barriers to entry by not requiring credit history, income verification, identification or social status to access finance. Instead, the only requirement is an internet connection. All transactions are then governed by *smart contracts rather than an institute and are confirmed/verified on a blockchain.
- *Smart contracts: A smart contract is a self-executing contract with the terms of the agreement written into lines of code.
So why is the news of Justin Sun removing billions of dollars of liquidity from a pool interesting?
It means he's removed money from the market (a liquidity pool); therefore, it now costs more to borrow. So even though it's a decentralised network, meaning no one person should control the power, we still find that certain people can move the market significantly and have severe consequences in doing so.
Metaverse
This is a nice segway to Facebook's news- the metaverse. According to Investopedia- "The metaverse is a digital reality that combines aspects of social media, online gaming, augmented reality (AR), virtual reality (VR), and cryptocurrencies to allow users to interact virtually." However, the original idea of the metaverse was a space that no one person or institution governed. Instead, the people controlled everything, and everyone had equal rights. One place where you can do this today is at Decentraland; this is a place where users can buy and sell digital real estate and engage and interact like they would in real life. Users have voting rights and can make decisions collectively.
Why is Facebook's news interesting?
The whole idea of the metaverse, or a decentralised social network, was to remove the power and control of big organisations. Individuals virtual identities would be stored on a blockchain and thus secure and immutable. Other benefits of decentralised social media include censorship resistance, personal data ownership, improved control over user-generated content. So the very idea of Facebook moving into this space is fascinating. It will be interesting to see how people react to the news and adopt this new reality?
Conclusion:
Remember this; the internet was once called "CyberSpace". A futuristic concept until it was a part of our everyday lives. But, the fabric of our reality is changing again. Humans are placing a greater value on our digital lives than ever before. So yes, this space is exciting, scary and overwhelming all at the same time. But I argue that the future is already here it's just not evenly distributed. The only real question remains, when will you believe it?
