Decentralized Finance (DeFi): Are We Creating Another Bubble in the Cryptocurrency Marketplace?

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September 1, 2020 by
Decentralized Finance (DeFi): Are We Creating Another Bubble in the Cryptocurrency Marketplace?

There is a new buzz in the blockchain and cryptocurrency industry and everyone seems to be talking about it. This is not the first time that the industry is experiencing such a level of activity over a novel invention. Everywhere you look, someone is talking about Decentralized Finance (DeFi) or something close to it. Significant in recent times is how the price of some DeFi tokens have skyrocketed, with some even soaring far above the value of Bitcoin in geometric measures.

Incidentally, the blockchain and cryptocurrency industry is an ecosystem where the majority of participants are learning by getting involved. This is a trend that has existed right from the early days of Bitcoin whose code is open source. Many major blockchain projects that followed after Bitcoin adopted the open source consensus. Hence, with DeFi, this philosophy has remained consistent.

Although a lot of people in the industry are yet to fully grab the concept of DeFi, this has not stopped the public from flooding the protocol. The general idea that DeFi eliminates the need for intermediaries, provides a trustless ecosystem of opportunities where participants can extract value from the digital assets using smart contracts appears to appeal significantly to the existing cryptocurrency community.

DeFi Token Prices Are Skyrocketing

While the bigger community awaits full understanding of the actual model of operation for the numerous DeFi projects that are springing up, cryptocurrency traders and investors are seeking ways to profit from the volatile marketplace. Take for example, yffi finance (YFFI) has gained over 1215% in 7 days, at the time of writing. During the same period, YF Link, another DeFi project gained over 472%. These are very high figures, the kinds of which we saw only during the ICO boom days back in 2017. 

The unprecedented surge in price of most of these DeFi coins makes a lot of people quite skeptical about the projects. People who played in the marketplace during the above mentioned ICO boom era are more likely to be reluctant in going all out into this astronomically rising trend. These ones understand what it means to be in a bubble. But then, who can tell this time, another bubble of something more consistent? You can imagine when yearn.finance (YFI) which is the biggest among the lot is worth about three times more than Bitcoin (BTC). This is something that is worth taking a more closer look at.

DeFi Concept Needs To Be Properly Explained

At the moment across several cryptocurrency communities, the explanation of DeFi from the few who are assumed to have a deeper understanding consists of complex technical terms that are yet difficult to understand.  Perhaps, this is similar to what we experienced in the early days of Bitcoin and blockchain when it resembled a playground for only coders and developers. A lot of participants that are enquiring about DeFi today are simply looking for a justification to partake in the speculative market, which at the moment appears to accommodate a huge profit potential.

In the middle of this all, it is expedient to understand that time will pass and the full knowledge of DeFi and applicable use cases will become common, just like the innovations before it. Perhaps, that is when the full essence of the technology can become explored by all and sundry. After all, it has been praised as an innovation that could push blockchain technology deeper into mainstream adoption. Lending, burrowing, investing and other aspects of mainstream finance is expected to experience major disruptions with the introduction of DeFi.

Bubble Or Not?

While the public continues to grapple with the fast moving markets around DeFi, and speculators seeking for the right opportunities to make the most of the market activities, the common man on the street must not be left behind. More education and enlightenment should become an important aspect of DeFi development. Unfortunately, the current global realities of social distancing may not permit the kind of conferences that pushed previous projects and innovations into limelight, other avenues must be explored. Virtual meetings, articles, whitepapers and comprehensive educational materials that explain the nitty gritty of this innovation need to be made more available.

Core team players are playing independent roles in granting interviews, hosting AMAs and leaving non-aggregated pieces of information here and there. In all of this, the general community needs to know and understand the fundamentals of the current trend. That is the only time that we can truly ascertain whether the industry is creating another bubble or not.

 

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