Predictions have it that this year is a boom for DeFi. We have the remarks of Piers Ridyard, CEO of Radix concerning Defi as a backbone for the development muscle of the cryptocurrency industry.
This article is set to tell us about the current unravelling tales of DeFi and the blossoming effect it will have on the industry this year 2021.
DeFi is Decentralized Finance
DeFi is short for “decentralized finance,” an umbrella term for a variety of financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries.
DeFi draws inspiration from blockchain, the technology behind the digital currency bitcoin, which allows several entities to hold a copy of a history of transactions, meaning it isn’t controlled by a single, central source. That’s important because centralized systems and human gatekeepers can limit the speed and sophistication of transactions while offering users less direct control over their money. DeFi is distinct because it expands the use of blockchain from simple value transfer to more complex financial use cases.
DeFi Integration Problems
Speed and scalability are DeFi’s biggest challenges and as such causing it’s integration problems. This is because the public blockchains underlying DeFi are currently unequipped to process large volumes of data at a scalable speed. In comparison, Visa can process 24,000 transactions per second (TPS, while the Bitcoin network can only process up to seven TPS and Ethereum 15 TPS.
Another problem is its lack of liquidity. The danger of this is that it contributes to the price volatility of crypto’s. This happens as investors constantly feel the need to sell and the market grapples with an ongoing long squeeze. Hence, when such large sums are traded on a public blockchain, it’s almost impossible to avoid slippage, lending even more to price volatility and investor fears. Centralized financial systems benefit from Central Bank support, helping to shore up liquidity. This is no doubt, the biggest incentive for users to stick and constantly prefer traditional systems.
However, DeFi is actively solving these issues with developments; as per its scalability problem, we see the development of the Lightning Network, based on the idea that not every single transaction needs to be recorded on the blockchain and instead the final one of multiple may be sufficient while for solutions to DeFi’s liquidity issues, the use of decentralized liquidity pools, for example, is a promising innovation. Sharing liquidity in ‘pools’ is one concept that embodies the core values of the decentralized community thus, enhancing DeFi’s integration and adoption.
The progress of these developments in place will also make it easier for DeFi to integrate and “play nice” with traditional finance tools and platforms, so it will be interesting to see what kinds of gestures the world of traditional finance makes to DeFi. We won’t get there in 2021, but it won’t be long before established traditional finance players will have to make a decision about how they might co-opt DeFi without getting co-opted, like media and music publishers did before them in the age of the internet.
2021 DeFi’s Prediction
As for the 2021 DeFi prediction, Ridyard states that “2021 will be DeFi’s biggest year yet. DeFi is not going anywhere — 2021 will be its biggest year yet, and with bigger years still yet to come. While 2021 will be a big year for DeFi, most of it will be on the back-end via development muscle. DeFi apps will become easier and cheaper to build, secure, and scale. It will be a big year for making DeFi attractive to new developers and then attracting those new developers to start building”.
He further reiterates that; “2021 is perhaps when we’ll really see the groundwork being laid for what will be the “Robinhood of DeFi.”
DeFi Is Already Winning The War
Certainly as seen above, flaws exist in the world of DeFi, and for growth and massive adoption, improvements are crucial. But then, there is obviously no need for a rush and things somehow, with time, get to fall in place and in proper shape. So, as the industry matures, it’s only a matter of time before things will get fixed. Considering the huge potential and opportunities present, DeFi can thrive especially this year whether in solidarity or in combination with traditional systems.
To Ridyard, he believes that DeFi is already winning this war though the presence of better software can better aid its adoption.
It may not feel like as big a year as this one did for DeFi, and the hype may die down a bit, but the actual progress being made will make it DeFi’s biggest year yet. More developer-friendly tools means more developer talent means an end-product that is better for and friendlier to the consumer. DeFi is already winning the war of financial empowerment, but better “software” will further help ease adoption and trust, while preventing the kinds of glitches that could blow up all that.
Duru Joselyn is a content creator, writer, self development coach and news analyst. She specifically enjoys writing on anything pertaining to cryptocurrency and the blockchain industry. Joselyn is a fun loving Nigerian who not only has a flair for giving information updates; she also enjoys a variety of outdoor activities especially traveling and photography.