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DeFi ain’t just about tokens, quality use-cases to overcome challenges

Decentralized finance has taken the crypto world by storm, reshaping the space.

Republished by Plato

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Blockchain technology is disrupting every sector of the global economy with its limitless opportunities and innovative products. Decentralized finance is one of the sectors that has been trying to shake the traditional financial ecosystem. The multitude of DeFi applications emerging all over the fintech space has provided solutions, such as lending, staking, exchange of derivatives, among others.

The current craze is justified, as DeFi attempts to build an alternative to the rigid banking systems. Also, government regulation (or lack thereof) and a flawed financial infrastructure have allowed DeFi projects to blossom. However, the concept of DeFi has also faced several hurdles, such as liquidity issues and everyday usability, which have prevented it from moving into the mainstream financial market. Moreover,32% of those who took part in a Blockfolio survey have no idea what DeFi is.

The DeFi market cap has exploded in the last few months, indicating the growing interest in this niche of the crypto industry. So, could this prove to be the financial revolution that the world has been waiting for?

DeFi numbers don’t lie

The latest statistics by DeFi Pulse indicate that over $7.7 billion is tied up in the DeFi market, with close to $4 billion added to the market cap in the last two months. Various DeFi projects and platforms have recorded outstanding growth. Compound, a decentralized lending protocol, has a current market cap of $540 million; however, it was only at around $100 million in mid-June.

Token Insight’s Q2 2020 report revealed that DeFi users have more than doubled from 100,000 to 230,000 since January 2020. However, industry experts are worried that the hype around these astronomical figures could be temporary because it might be based more on speculation rather than the use case application of DeFi products. Johnson Xu, the head of research at TokenInsight, told Cointelegraph:

“In the short term, the high-interest rate and the incentivized liquidity mining mechanism has created a hype in the space, which directly pushes up the DeFi market, resulting in a speculative push in the DeFi space. Without any further applications and use cases to be created in order to accrue meaningful value within the space, we believe the recent DeFi hype could be short-lived.”

Overall, there’s a number of factors in the DeFi ecosystem that are contributing to the radical growth of decentralized finance.

Defi tokens

DeFi tokens are the craze right now in the crypto space, with new projects seeking to offer value to crypto users. According to DeFi Pulse’s token list, there are a variety of projects, most of which offer their native tokens. The increased adoption of DeFi products derives from the purchase of these tokens, especially those intended for lending and borrowing, such as Compound’s COMP token and Aave’s LEND.

Lending calls the shots when it comes to the rampant adoption of DeFi products. And rightfully so since the crypto loan industry is well past the $10-billion mark. Debt is an integral part of the financial economy, which is the driving force behind the increasing adoption of DeFi loan products. There’s also the benefit of earning interest for people on DeFi lending protocols. Vadim Koleoshkin, the chief operating officer of Zerion — a DeFi interface — told Cointelegraph:

“Lending is one of the easiest to understand financial instruments in the DeFi space. It promises to earn passive income on your assets protected by the collateral of debtors. Other products like AMM pools (Uniswap, Balancer, Mooniswap, Bancor), trading strategies (TokenSets, Melonport) or yield farming all have way more risks associated with both market conditions and complex smart contracts. However, even lending may not be 100% secure.”

DEXs surge in popularity

Since decentralized exchanges eliminate the need for middlemen, their popularity has increased steadily over the last few months. Decentralized platforms such as Curve, Uniswap and Bancor have recorded phenomenal growth. Uniswap’s daily trading volume recently surpassed that of Coinbase Pro since most of its operations are automated.

Increased liquidity and security of DEXs have made DeFi attractive, which has enhanced its adoption. These exchanges are finally seeing some remarkable volume as they ride the Defi mania.

Decentralized prediction markets and insurance

DeFi products are also being used by people to bet on or predict certain outcomes. Platforms such as Augur have attracted a large number of investors. At the moment, these DeFi platforms are used by investors to protect their assets against smart contract bugs. However, in the future, such products will expand into vehicle and natural disaster insurance.

The DeFi token economy is robust and has been thriving due to its incentivized structure that encourages market participation. Right now, one of the hottest tickets on the DeFi market is Compound’s COMP governance token, which has taken the idea of liquidity mining to a whole new level. With yield farming and staking, investors hope to reap the benefits by having COMP tokens, which allow them to make returns from different portfolios. Despite this, yield farming entails risks, as recently pointed out by Ethereum co-founder Vitalik Buterin.

Currently, lending protocol Aave is giving MakerDAO a run for its money since the latter is the king of the DeFi token market. LEND now holds the top position in the DeFi token list with the highest total volume locked. Additionally, governance tokens give investors the power to determine protocol changes, which may spell doom since most tokens are currently controlled by a handful of whales. That said, buying DeFi tokens can’t be compared to the 2017 ICO craze because most of the projects already have live products.

Related: Alt season is here? DeFi tokens taking on Bitcoin for crypto dominance

While DeFi tokens are an integral part of disrupting the financial sector, other key market makers have been slowly and steadily redefining the finance world. Platforms such as Uniswap provide the DeFi ecosystem with innovative mechanisms such as automated market making, which settles trade automatically. Others, like Augur, are based on a prediction protocol that lets you vote on event outcomes.

Challenges before going mainstream

Despite the buzz around DeFi, this niche of the crypto industry is still in its infancy, and there are still several things that have to be addressed before DeFi can move from its novice stage into a full-blown financial market shaper. A key concern regarding DeFi products is the vulnerability that comes with smart contracts. A case in point is the attack on the bZx protocol in March where a hacker took advantage of the system’s flash loans feature to exploit a flaw in the program. Buterin noted during a podcast episode of Unchained: “A lot of people are underestimating smart contract risk.”

Since most DeFi contracts are built on the Ethereum blockchain, the network’s high fees are a major challenge to the uptake of products. Responding to this issue, Koleoshkin noted: “DeFi allows you to access a range of financial products from anywhere in the world, but it is accessible to the people ready to pay tens of U.S. dollars for each operation.”

There’s also a major concern that the latest craze of yield farming is sending the wrong message about decentralized finance. The high-interest rates that are being offered could blind parties to the systematic risks facing the lending protocols. The focus should shift to other building blocks of the DeFi ecosystem, such as oracles for prediction markets, synthetic tokens and decentralized exchanges.

Improving the usability of DeFi products is necessary to make them intuitive and enjoyable for users. The protection and privacy of data, as well as addressing the issue of liquidity, should be the main focus of DeFi protocols to prevent loss of funds.

Additionally, ideas such assustainable liquidity mining models will help cushion DeFi products from the effects of price volatility. The DeFi ecosystem also needs to solve the issue of interoperability among the networks to help drive adoption. For improved usability and liquidity, every smart contract and decentralized application should interact seamlessly with each other. Koleoshkin noted:

“The whole market is a playground for financial geeks who are way more comfortable to manage their wealth on their own rather than open a brokerage account. Still, the DeFi space is very fragmented, and there are many gaps in the market infrastructure that increase development and maintenance costs.”

Source: https://cointelegraph.com/news/defi-ain-t-just-about-tokens-quality-use-cases-to-overcome-challenges

Blockchain

Ripple’s Brad Garlinghouse, Chris Larsen File Motions To Dismiss SEC Lawsuit

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Ripple’s CEO Brad Garlinghouse and co-founder Chris Larsen have recently appealed to Judge Analisa Torres, filing two separate motions to dismiss the US SEC’s amended complaint against Ripple and its executives.

Regulatory Overreach

In a letter dated March 3, 2021, the Attorneys representing Garlinghouse stated that the lawsuit filed by the SEC against Ripple was simply a “regulatory overreach.”

They argued that the SEC’s allegations of Garlinghouse aiding and abetting the sale of XRP, which they also alleged of being a security under the Securities Act, failed based on several reasons.

The letter reads:

“The SEC fails to recognize the economic realities of Defendants’ transactions in XRP, the XRP market, and Ripple’s business, each of which exhibits none of the traditional characteristics of an investment contract under SEC v. W.J. Howey Co.”

The Howey Test is often used by the SEC to determine whether an asset possesses the qualities of a security, and the regulatory body had argued that XRP had all the characteristics of a security. 

However, Ripple and its executives have maintained that XRP is a virtual currency, as confirmed by the Justice Department and FinCEN.

The filing also remarked on the recent amended complaint filed by the SEC before the pretrial hearing on February 22, which alleged that Garlinghouse violated securities laws by selling his XRP holdings through Ripple.

Baseless Claims

Garlinghouse had reportedly sold more than 60% of his XRP holdings worth around $159 million at that time, a move that had been frowned upon by several members of the crypto community.

However, the attorneys representing him have asserted that the SEC’s complaints against him are baseless since there are no tangible proofs to show that those transactions had indeed occurred within the US.

They said that “the truth is that the vast majority of Mr. Garlinghouse’s XRP sales were made on foreign exchanges, and those transactions do not and cannot violate the federal securities laws.”

Meanwhile, Chris Larsen’s lawyers said in their letter that the regulator has failed “to state a claim against Mr. Larsen,”  even in its amended complaint. Hence, the lawsuit against their client should be dismissed.

An Attack On Cryptocurrencies

The conclusion of this SEC lawsuit against Ripple will greatly affect the way cryptocurrencies are viewed and regulated. 

The CEO had earlier stated that this case is an “assault on crypto at large” and that Ripple “will not let SEC bully the entire industry.”

It is still uncertain who would be declared right or wrong, we just have to wait and watch with fingers crossed.

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Source: https://cryptopotato.com/ripples-brad-garlinghouse-chris-larsen-file-motions-to-dismiss-sec-lawsuit/

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Blockchain

XRP Price Analysis: 04 March

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Disclaimer: The findings of the following analysis are the sole opinions of the writer and should not be taken as investment advice

XRP’s price action has seen it move in both directions rapidly over the past two months. In fact, the first half of February alone saw the coin make significant strides north before it corrected to account for losses on the price charts. However, such price movement was mostly confined between its resistance and support levels. In the coming weeks, the cryptocurrency may continue to trade range-bound provided its immediate support doesn’t give in to the market’s bears.

At the time of writing, XRP was trading at $0.455 with a market capitalization of over $20 billion. Over the course of the week, the cryptocurrency registered losses of over 6 percent. However, a slight uptick in price was noted over the last 24 hours, with XRP able to hike by close to 4 percent.

XRP 1-day chart

Source: XRP/USD, TradingView

Since the start of February, XRP has traded within a confined range. Its price action has been limited to trade between its resistance at $0.62 and support at $0.39. This support level is very crucial to XRP’s price in the long-term and if the bears flip this to resistance in the coming days, XRP will see its price head towards the $0.24 range – a trading price that was last seen in January 2021.

At the time of writing, there was a bit of bullish momentum that seemed to be benefitting the crypto’s price. If a trend reversal takes place over the coming days, then traders can benefit from a short position.

Rationale

The altcoin’s technical indicators highlighted how the coin is still not entirely out of the woods yet. There was significant bearish pressure for XRP on the daily chart. The MACD indicator underwent a bearish crossover and while a reversal seemed possible, it hadn’t occurred at the time of writing. Additionally, the Stochastic indicator was still in the oversold zone, despite moving towards the neutral zone.

Important levels to watch out for 

Resistance: $0.62

Support: $0.39, $0.24

Entry: $0.42

Take Profit: $0.26

Stop Loss: $0.58

Risk/Reward:0.91

Conclusion 

XRP’s price can be expected to be range-bound in the near-term. That being said, the altcoin may lose a lot of its value if the immediate support is breached in the next 24-48 hours. On the contrary, if the press time bullish momentum sustains itself, then a move towards its immediate resistance at $0.62 cannot be discounted.


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Source: https://ambcrypto.com/xrp-price-analysis-04-march

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A dark horse in the Ethereum scaling wars? Chainlink’s oracles find fertile ground on xDai

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Chainlink (LINK) oracles have made their way to xDai, an Ethereum sidechain that has seen growing adoption among DApp developers who cannot afford to stay on the Ethereum mainnet.

As announced by Chainlink on Thursday, its price feeds are live on the xDai mainnet, offering price data for an initial set of trading pairs including LINK/USD, AAVE/USD, DOT/USD and SUSHI/USD. More pairs can be quickly added if there is demand, the company said.

The integration was completed by Protofire, a development workshop and xDai validator. The team received a Chainlink Community Grant to port native Chainlink oracles on xDai, including a token bridge adapter that enables native LINK payments for the oracle’s functionality.

The integration of Chainlink price feeds is the latest in a series of positive adoption news for the xDai project. The chain was already hosting major Ethereum-based DApps like Perpetual Protocol, a derivatives platform, and Omen, a prediction market developed by Gnosis. The inclusion of native Chainlink oracles removes a major barrier for projects relying on them, potentially opening up xDai for more DApps who wish to escape from the congested Ethereum mainnet.

Decentralization is good, but it won’t pay for gas

xDai is a relatively centralized sidechain secured by an independent set of validators. Sidechains are a type of chain where a standalone blockchain uses another’s token as a native currency for paying transaction fees — in xDai’s case, that token is MakerDAO’s Dai. The architecture binds the economies of the two environments, but the sidechain is otherwise a completely independent entity with its own security rules.

In the Ethereum community, xDai is commonly known as a centralized layer two solution. It was launched by PoA Network, a project whose name directly hints to centralization — Proof of Authority is the somewhat euphemistic name of a consensus model where the validators are chosen by the project’s insiders, instead of a community.

The xDai chain has since its launch transitioned to a Proof-of-Stake model very similar to that used by EOS or Binance Smart Chain. The total number of validators can never exceed 19, compared to the tens of thousands of validators in Ethereum’s Beacon Chain. The benefit this architecture provides is faster scalability, with xDai offering an advertised 70 transactions per second for simple token transfers.

In a conversation with Cointelegraph, Friederike Ernst, chief operating officer at Gnosis, agreed that xDai is somewhat centralized:

“It is not as decentralized as mainnet, this goes without saying. Obviously these are for very different use cases: you don’t want to do things on xDai where you need the economic consensus guarantees of layer one. But for many things, you don’t actually need them.”

The allure of xDai comes in part from its almost plug-and-play compatibility with Ethereum. Its OmniBridge allows moving any token to xDai and back, while its blockchain architecture is almost identical to Ethereum. This makes porting DApps or infrastructure elements like oracles very easy.

The centralization concerns seem to be not enough to stop adoption. Chainlink sees itself following developer demand, with Johann Eid, head of integrations at Chainlink Labs, telling Cointelegraph that “smart contract developers should have the option to work with whichever chain is the best fit for their use case.”

For Omen, the decision to set up shop on xDai was a matter of immediate necessity, Ernst explained:

“For most things, the gas costs outweigh the downsides of being on a PoA chain. And the fact of the matter is, while people are betting on a lot of layer two solutions, very few of them are in production.

Array

The growing adoption of xDai or Binance Smart Chain is seemingly at odds with the crypto community’s preference of decentralization. Ethereum fans often believe that the prevalence of DeFi on the blockchain is the result of its more decentralized architecture and community spirit. Indeed, the rise in usage of blockchains like Tron or BSC occurred after it became clear Ethereum could not cope with its load.

At the same time, decentralization appears to be not enough by itself. For example, the most Ethereum-like blockchain in existence is Ethereum Classic, which was formed by a community who believed that Ethereum was not decentralized enough. It has failed to attract almost any interest from DApp developers.

More centralized solutions have a major benefit going for them — they work, right now. Rollup-based layer two solutions are still in development, with Optimistic Rollups being closest to release. Ernst was not particularly enthusiastic about its one week withdrawal waiting period, though. “I’m a huge fan of zkRollups. There you don’t have the withdrawal limitations, but the technology is not developed enough.”

While some developers continue waiting for rollup-based solutions, platforms like xDai can advance unimpeded. “Ultimately, it’s a tradeoff between the higher security guarantees offered by Ethereum and the usability, innovation, speed and cost savings right now on L2 sidechains,” an xDai spokesperson told Cointelegraph. As long as gas fees on Ethereum remain high, DApps may bforced to choose practicality over ideology.

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Source: https://cointelegraph.com/news/a-dark-horse-in-the-ethereum-scaling-wars-chainlink-s-oracles-find-fertile-ground-on-xdai

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