Traditional funding went ahead to allow decentralized funding to run.
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April 8, 2021 4 min read
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In contrast to the chaos of the crumbling global economy, decentralized financing (DeFi) experienced an unreal boom in the 2020s.
The warmer months of last year are now dubbed “DeFi Summer” as the total value of their smart contracts has grown rapidly from a few hundred million to over 20 billion US dollars in just a few months.
As the name suggests, decentralized financing works independently without relying on traditional intermediaries such as banks and insurance funds. Thanks to the user’s ability to invest, trade, transfer and conduct peer-to-peer transactions using cryptocurrencies along with digital assets, there is no need for these intermediaries.
Related: Because of this, Bitcoin will hit $ 59,000 in 2021
The growth of DeFi
The first major event that helped enable decentralized funding was the creation of Bitcoin in 2009, which enabled a standard blockchain for all of Ethereum’s top DeFi protocols.
Ethereum launched in 2015 and quickly attracted developers who wanted to create all kinds of decentralized applications, from financial applications to games (like the viral CryptoKitties).
Fast forward to 2017 when ICOs prevailed on Ethereum. This home for digital money, global payments, and applications has led to some of the most notable DeFi projects of the ICO era. From that point on, it became clear that the public was warming to DeFi. Billionaire entrepreneur Mark Cuban compared the growth of DeFi to the dawn of the internet:
“You are starting to see NFT (non-fungible tokens) and it’s not so much about how much is sold, it’s market value, but more about making people feel more comfortable with it, and that’s how we’re starting to see these applications that only appear on the left and right. It reminded me so much of the early days of the internet, when internet applications were talked about in the mid-1990s but the internet had been around for ten years. “
Cubans believe in the power and potential of DeFi, especially given the new highs in token prices that Ethereum is hitting and the so-called “Ethereum killer” protocols like Polkadot and Solana.
Of course, DeFi is not just about the prices of the platforms’ native cryptocurrencies. For example, TrustToken recently introduced its TrueFi protocol for unsecured on-chain lending to Binance. The protocol essentially allows people to borrow money without locking their crypto as collateral, which is what Ethereum needs. TrueFi takes the idea of unsecured lending that exists outside the blockchain in the form of high-yield, short-term “text loans” and improves it through DeFi mechanisms, with transparency being a key component of the offering.
Borrowing and lending are just one of the many options DeFi offers. The growth of non-fungible tokens (NFTs), which open the door for people to invest in traditionally non-fungible assets such as real estate and art, is also a promising development in space and is growing in popularity. Cuban is a big fan of this particular DeFi segment.
Related: How 2020 became the year of DeFi and what’s to come in 2021
There is still more in stock
Aside from getting rid of regulators, there are a few reasons the DeFi craze for it. Another reason is that large wealth management funds and financial institutions are getting involved as they start to embrace DeFi and look for ways to get involved. Then there is the classic case of FOMO: people don’t want to be left out of this explosive growth, especially given all that the future holds for them.
DeFi developers are constantly building new innovative projects and looking for ways to attract new users to participate. Developers are also discovering new use cases that were previously difficult to deal with due to the high network charges. Tokenizing new, more traditional assets also creates new and exciting opportunities.
The recent boom only paved the way for greater potential that has not yet been realized.
Related topics: How decentralized financing is being redefined