DeFi: A Look to the Future and the Now
It is official, the first new asset class in over 400 years has been born and it is called Cryptocurrency. If you are still on the outside looking in, it is time to pay attention now more than ever. Ethereum, the king of DeFi, has broken out to a new all time high on the news that Visa will be accepting payments via stablecoin USDC on March 29th. When you talk about mass adoption, it doesn’t get much bigger than that.
However, as we look to the current and future states of the DeFi market as a whole, some issues come to light, presenting huge opportunities for those that provide robust solutions.
Major drivers of DeFi
DeFi offers yields exponentially greater than that of traditional finance markets. This is one of the biggest opportunities investors have in DeFi and why they will stomach high gas costs, slow transaction times, and a UX that is lacking in user friendliness. As the latter three issues continue to be improved upon, we will see wider adoption of DeFi across a broader audience of non-crypto native users. Blockchains offering cheaper, faster solutions to the Ethereum network are gaining traction as we see protocols such as Alpha Homora and Value DeFi launching on Binance Smart Chain (BSC).
Luna is another notable innovation which aims to consolidate decentralized lending, borrowing, saving, and derivatives in one user friendly ecosystem while still solving the high gas fee issue with transactions costing $0.50 or less. Their recent launch of savings protocol Anchor currently offers the highest yielding crypto savings account at 20% annually on the user’s UST (Terra Stablecoin) holdings.
What about NFT’s?
This year, we have seen notable figures like Gary V and Mark Cuban raving about NFTs as the next big thing and to that point. We are also seeing an explosion of interest on the retail side and with this gain of interest comes a myriad of new offerings to meet demand. As of March 17, 2021 Mark put his money where his mouth is after a $23M investment in one of the most widely used NFT platforms, OpenSea.
This is absolutely just the beginning of a long term adoption cycle that has yet to adopt a plethora of use cases NFT’s have to offer including digital art, collectibles, real estate, and music to name a few. However, people choosing to enter and invest in this space need to air on the side of caution and do their due diligence prior to purchasing. Many have blindly entered hoping to take a piece of the parabolic gains that some investors have experienced over the past year and have fallen victim to their own greed.
DeFi innovations and CeFi?
Another hot topic for us as of late has been the battle between DeFi and CeFi. DeFi being focused around Ethereum, Uniswap, Aave, Synthetix, and Bancor. CeFi is led by Celcius, Nexus, BlockFi, Coinbase, and Gemini. At the root of it is conflicting ideals between those that want exclusive control over their finances by engaging with DeFi and those that do not mind an outside entity being in control. This is once again where fees come into play and how much people value the idea of DeFi while thinking that they could be saving an incredible amount by engaging with CeFi instead. With fees on the ETH chain running hundreds of dollars per transaction and Gemini or Coinbase charging mere dollars and cents, many are choosing to side with savings over ideals. Will this trend continue over the coming months? Will ETH innovate to compete with CeFi fees during this bull run? That is what we are waiting for.
And while we are on the topic of market cycles, it seems like a ranging Bitcoin could be just what is needed for a big push in the altcoins. To that point, Grayscale just announced on March 17th, 2021 the launch of 5 new trusts including BAT, FIL, LINK, LPT, and MANA. It would appear that Grayscale is gearing up for an altcoin bull run themselves as we move into April and will be well suited to benefit given their recent picks.
Eventually, the limitations outlined will be a thing of the past across the board as layer 2 solutions such as rollups and off-chain reporting mature enabling faster, more efficient network capacities. As these ecosystems scale we will begin to see greater adoption across the traditional finance industry. Once that happens, we expect the DeFi will be a few seamless integrations away from mass adoption enabling faster transactions, greater yields, and a plethora of new opportunities for the traditional finance industry and the retail customer.