The most recent buzz around the blockchain and cryptocurrency industry revolves around decentralized finance (DeFi). Although the innovation is not entirely new, the sudden emergence of several DeFi projects and their astronomical price surge attracted a lot of interest on the subject. Apart from the short term events, which many participants have described as a developing bubble, the long term benefits of DeFi is something that deserves a closer look.
In less than two months, the cryptocurrency community has seen yearn.finance (YFI), one of the big DeFi coins, grow from below $1,000 to over $39,000 in price. This reflects a growth of over 2,500% within the space of time. This brought the market capitalization of YFI to above $800 million.
YFI was not alone in this surge. Also achieving significant price hikes are several other DeFi coins like YFII, YFL and YFV, among others. Nearly all the newly launched DeFi coins posted extraordinary growth rates over the past few weeks. However, as predicted by many, these prices have already started crashing.
While the short term effect of DeFi development revolves around the speculative marketplace, what defines its sustainability is the protocol behind the technology. This informs the original philosophy of the creators and the solutions brought about by this novel technology.
A number of experts shared their thoughts and expectations on the long term impact of DeFi on both the blockchain ecosystem and the financial industry at large. Altogether, they seem to agree that DeFi is a beautiful development that will eventually disrupt the world of finance, especially with blockchain technology growing in stature. Here are some of the opinions.
DeFi brings an expanded amount of utility to tokens that have smart-contract programmability. More utility equals more usage. This should result in more users, more volumes, and more activity all around. While DeFi will undoubtedly go through a bubble of its own, the utility created from all the radical experimentation will remain
Trading volume on decentralized exchanges is exploding, which is encouraging for innovation along with the hope that we can one day move away from reliance on traditional finance and banking networks — which today is the achilles heel of crypto. While as a broad category DeFi is not ready for mainstream adoption, I find the long term implications promising. Finance will decentralize and what we’re seeing today is the birth of what will become an important new industry, but adoption will start with the simple stuff and go up the complexity ladder from there over the course of a few years.
The long-term impact of DeFi projects is the potential for the entire crypto industry to become 100% decentralized and to solve the vexing trilemma problem of having to make suboptimal tradeoffs between decentralization, scalability, and security. In addition, the rapid advancement of DeFi algorithmic stablecoins, especially those based on the central bank model, has the potential to bring unprecedented value to the crypto industry.
In addition, Xu explains that some DeFi infrastructure could be powerful enough to replace dated practices in the traditional finance world. For example, automated market maker-based (AMM) decentralized exchanges (DEX) have shown us how DeFi protocols can elevate practices of traditional asset trading. We are seeing the rapid development of DeFi protocols on AMM-based DEXs, yield generation, staking, insurance, derivatives, payments and various governance tokens.”
Chambers acknowledges the advent of decentralized finance (DeFi) as the new wave in crypto. On the long term impact, he says;
DeFi sets the course for the future of financial services; a future that is run from blockchains via smart contracts, which will transform – and maybe make obsolete – the role of traditional financial institutions. It will shape the landscape for financial services in the same way Amazon has shaped the fortunes of the high street
He continues by noting that there is no doubt about the fact that DeFi is huge and going to be even bigger. “This is all still in its infancy and there are certainly kinks that need ironing out, he says. “But the genie is out of the bottle and it’s a boon for the crypto industry.”
Ethereum, up until the recent flash crash had been rocketing and there’s been a rise in the market cap of many of the tradeable tokens used for DeFi smart contracts. For Chambers, the exciting aspect of DeFi is the crypto lending part where you can stash your cryptocash in a blockchain system and get paid interest on it in a “risk free” way.”
Iyke Aru is a seasoned author and educator in the blockchain and cryptocurrency industry. He has been in the business of crypto content writing for many years with thousands of his articles across several platforms on the internet. Iyke is based in Nigeria where he stands out as one of the most informed and credible figures in the cryptocurrency industry. Outside blockchain and crypto, you will most likely catch Iyke playing or discussing football with friends and family.