What’s Next for DeFi?
DeFi may still be in its early days. But it has changed the course of the crypto industry in ways unimaginable. Despite the rapid ups and downs over the last three years, DeFi has always come back stronger, thanks to the consistent innovations in the space. The recent crypto crash triggered by Terra Luna has many wondering if it will impact the growth of the DeFi industry. However, this time won’t be any different either. A robust technology can’t be tramped down by a few mishaps. It will continue to grow, as long as there are strong-willed people behind it.
In this article, we analyze what the future holds for DeFi. To better understand this, we need to take a look at the journey so far.
The Three Eras of DeFi
The total value locked in DeFi crossed $1B for the first time in the first half of 2020. By early 2021, the number had surged to $20B, thanks to the growing interest in cryptocurrencies during the pandemic. Traditional investors were starting to take notice of the industry. The ongoing developments in liquidity mining and the massive earning opportunities it opened up further catalyzed the movement.
By December 2021, the number crossed $250B. Fast-forward to May 2022, it has tumbled down by more than half to $112.73B.
The dramatic movement of the market is marked by the emergence of new projects, upgrades, innovations, and the lack of these. For example, liquidity has been a persistent challenge for DeFi projects before the pandemic. There were no efficient systems that incentivized liquidity providers. The interest and fees from traders were too little to bring in adequate liquidity.
The concept of yield farming solved this dilemma to a great extent. Projects like Compound started rewarding liquidity providers with farming tokens in addition to a share of fees. The more liquidity you add, the more LP tokens you could get your hands on. You can deposit these tokens to other pools and earn further rewards. Sushiswap revamped Uniswap with a reward system that gave the former a run for its money. And thus began the DeFi summer. This period from $1B to $20B is referred to as DeFi 1.0.
Stepping into DeFi 2.0, the industry saw an influx of new projects that honed the underlying technology with new upgrades and innovations. The concept of decentralization was taken beyond transaction to governance and community-building. DAOs came to the forefront, giving a decentralized foundation to DeFi projects.
Some of the top DeFi 2.0 projects like Olympus DAO, Convex Finance, and Abracadabra.money made breakthroughs in crypto-economics, with new DeFi mechanics. Some even integrated broader visions, like climate change. For example, Klima DAO introduced a digital currency backed by real carbon assets, motivating users to fight climate change. In the liquidity arena, Automated Market Makers put forth consistent developments to reduce slippage, motivate liquidity providers, introduce more trading pairs, integrate new blockchains, and ultimately promote sustainable development of the underlying platforms.
This period took DeFi from $20B to $200B and expanded the DeFi ecosystem beyond Ethereum to blockchains like BSC, Solana, Avalanche, Arbitrum, and Cronos among others.
New Ecosystems, New Challenges
Trouble began to brew when the DeFi ecosystem fragmented into multiple blockchains. Liquidity challenge poked its head again, having been divided among the different blockchains, incompatible with each other. Additionally, many of the new protocols were still under development. The lack of audits and security measures proved fatal for some. Incidents of smart contract manipulations and hacks became commonplace. In fact, DeFi platforms have become a hunting ground for cybercriminals in the last few months. From Wormhole to Beanstalk and Cream Finance, each new hack tramps down the DeFi enthusiasm.
The Road Ahead
It goes without saying that the industry has overlooked security. Projects have to put more effort into guaranteeing the safety of user deposits. That is the only way to win back their trust. But then, innovation has to go hand in hand too. The technology has a lot of potential that deserves more attention. Multi-chain integrations, institutional adoption, and the introduction of creative products will be integral to bringing it on.
For example, Oddz has been consistently trying to bring innovative products to the market. Oddz DeFi Options, our flagship product, offered a credible alternative to traditional derivatives with better accessibility and earning potential. It is currently available on Avalanche blockchain and will soon integrate Arbitrum. With a blockchain agnostic approach, we intend to build a solid foundation for DeFi. We also have some interesting products underway that will bring play-and-earn elements to DeFi.
Bears will come and go. Don’t let that deter you from the path forward. It is green and full of possibilities.
Oddz is a trustless on-chain options trading platform that expedites the execution of call and put options contracts, conditional trades, and futures. It allows the creation, maintenance, execution, and settlement of trustless option contracts, conditional tokens agreements, and futures contracts in a fast, secure, and flexible manner.
It employs the synergies of Ethereum, Avalanche, Binance Smart Chain, Polkadot, and Polygon to unleash the potential of a decentralized options market. It focuses on building solutions that can propel the DeFi ecosystem by simplifying options trading and enhancing the user experience.