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For DeFi to Grow, CeFi Must Embrace It

Despite the buzz, DeFi is not on a good trajectory. It’s too technical, too volatile and too “geeky” to be adopted by “the mainstream,” William Mougayar writes.

Republished by Plato

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William Mougayar is the author of “The Business Blockchain,” producer of the Token Summit and a venture investor and adviser.

DeFi has grown to a point where its mindshare now far exceeds its relatively small crypto market share. It has benefited from a catchy name, and continues to spawn catchy words like “sushi.” DeFi sounds better than what it is:  “automated algorithmic financial products with no central human intermediaries and plenty of decentralized computer-based protocols as the intermediaries.” 

That said, no matter how you cut it, DeFi’s market share numbers are still relatively small. By market cap, hovering at $16 billion, DeFi is about 4% of the total crypto market. By transaction value, even at $13 billion for a trailing 30 days, decentralized exchanges represent 0.3% of overall crypto exchange trading value. By value locked, at $9 billion, that’s 2.4% of the total crypto market value. By users, at 160,000 (estimated), that is 0.32% of the 50 million blockchain addresses. 

See also: Donna Redel & Olta Andoni – DeFi Is Just Like the ICO Boom and Regulators Are Circling

Granted, the above numbers only offer a static snapshot of DeFi. They do not give us the full dynamic picture on its velocity and vibrancy. To counter its tiny market share footprint, DeFi’s growth rates have been vertiginously high (into the three or four digits of growth depending what you are looking at), and from an activity perspective DeFi is consuming the lion’s share of blockchain entrepreneurial creativity, innovation and sheer intensity in product introductions, to the point where keeping up with this segment has become extremely challenging, even to insiders.

Despite all this excitement and positivity surrounding it, DeFi is not on a good trajectory. DeFi users (just like its creators) are geeky. They are mostly crypto nerds or early adopters. For DeFi to thrive, it must enter the mainstream and attract users who do not tolerate nor understand DeFi’s geekiness.

Here’s why and how.

Where will users come from?

DeFi maximalists are dogmatic in believing that financial self-custody is enough to grow the segment. Unfortunately, there aren’t enough users who want to duke it out on DeFi’s user experience quirkiness. 

The jargon itself is a deterrent: flash loans, yield farming, staking, liquidity pools, liquidity providers, slippage, bonding curve, vaults, money market as protocol, algorithmic market-making, credit delegation and so on. These aren’t subjects that will be understood by mainstream users, let alone by some financial experts.

The CeFi market potential is staring DeFi in the face.

You might be thinking: How about the new group of so-called “DeFi wallets”?

Yes, there is a new generation of self-custodial wallets that are bent on a self-proclaimed mission to attract millions of users to DeFi. The best of them have beautiful user interfaces. But they all have an intrinsically poor mainstream usefulness because they tilt on geekiness, and on the assumption that end-users are fully versed in DeFi concepts.

For the above reasons, I believe the best prospects for growing DeFi and ushering it into the mainstream is via central exchanges, or “CeFi.”

I recently conducted a Twitter poll asking the question of whether DeFi is infrastructure, middleware or end-user application? The majority of responses favored the proverbial “all of the above” answer. 

screen-shot-2020-09-02-at-2-38-00-pm

As infrastructure, DeFi’s protocols provided a technical and functional base layer to build on.

As middleware, DeFi has seen a proliferation of APIs, open access points, interchangeable modular functionality (which DeFiers call “composability”) and a rich programmability potential. 

As application, the wallet has become a popular entry point, mostly via the non-custodial type, arguably the least user-friendly flavor among typical crypto wallets. 

These multiple personalities have helped disguise DeFi’s entrance. As a result, and with no concern for these blurred architectural lines, DeFi developed into a messy patchwork of products, services and technical capabilities all mushed-up as one. 

Although initially acceptable, this messiness will eventually disappear as the segment matures. Eventually, these three architectural pieces will become discreetly disconnected and more clearly visible. 

CeFi to the rescue

Here are three angles of attack that CeFi players can adopt in order to fully exploit the explosion of DeFi.

See also: Paul Brody – Enterprises Would Use DeFi, if It Weren’t so Public

Bring DeFi products inside exchanges

CeFi players have already built mainstream user experiences inside their exchanges. That was a key requirement for their success. Now, they must figure out how to integrate DeFi products and services into their offerings by gradually tucking them inside these known user experiences.

Binance, Huobi and Coinbase have already started to do some of that by listing DeFi tokens or creating baskets of DeFi indices, adding staking services, and introducing stablecoin-backed interest rates on top of staking services. These are all good but timid first steps, but nonetheless required ones.

Think like wholesale pickers

Long term, I see the various DeFi protocols as being the equivalent of “manufacturers,” with CeFi as the wholesalers that pick their products, integrate them and give them a retail face. CeFi players should hurry and pick the DeFi products they want to build on top of.

To do so, CeFi can focus on integrating DeFi from the middleware levels and providing their own user experiences, i.e. adding their own brand of lipstick on top of the DeFi tech.

Provide more education, not just great user experiences

As mentioned, many new crypto-wallets have gorgeous interfaces. But while necessary, that is not sufficient. What I am referring to is market education, not in-app tutorials and “how to do this” that quickly overwhelm mainstream users. 

To quote the Japanese writer Haruki Murakami, “If you can’t understand it without an explanation, you can’t understand it with an explanation.”

See also: Galen Danzinger – In 2019, Students Demanded Blockchain Education. In 2020, It’s Coming

Market education will go a long way. The goal is to dumb down the DeFi entry points to mainstream levels of understanding such that the inner complexities are hidden so that the new benefits can emerge via a mainstream kind of wrapping.

You might think, how about traditional finance? What is its role? In my opinion, traditional finance players have higher hoops to jump through to integrate DeFi than CeFi players do.

Before DeFi can aspire to eat traditional finance, it needs to eat some CeFi first, maybe as the appetizer.

Another scenario might be to let DeFi grow from its own base while skirting around CeFi and OldFi (traditional finance). That plot has a lower likelihood of success and a greater difficulty level, judging by what we have seen so far from the DeFi players.

Some may think that going the CeFi route comes with risks of increased centralization powers in the hands of the big exchanges, but that is a lesser worry than to let DeFi meander its way into uncertain growth from a small base.

See also: DeFi Dad – Five Years In, DeFi Now Defines Ethereum

The CeFi market potential is staring DeFi in the face. If CeFi exchanges want to start looking more like full-service financial services institutions, they need to become DeFi’s best distribution channels. 

I hope that both sides meet each other half-way to make this happen.

Disclosure

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Source: https://www.coindesk.com/defi-growth-cefi-embrace-it

Blockchain

Bitcoin: Temporary Correction or No ATH This Year? The Crypto Weekly Market Update

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Bitcoin has a way of surprising people. This week was no exception. A few days ago, almost everyone believed that the cryptocurrency is inevitably headed to a new all-time high. And how could they not? BTC was trading at a few hundred USD below the record from back in 2017. Unfortunately, things took a turn for the worst.

Yesterday was undoubtedly a bad day for bitcoin as it plunged a total of around $3,000 in less than 24 hours. From a high of about $19,500 down to $16,200, the bears poked and showed their faces. The entire market lost around $80 billion of its capitalization as altcoins actually had it worst.

During the market dive, Bitcoin’s dominance actually increased, showing that not only altcoins failed to hold their ground, but they dropped harder than BTC. Since then, there has been a slight recovery and at the time of this writing, the primary cryptocurrency is trading at around $17,000.

The move was seemingly propelled by the news that US regulators might seek to require identity verification from crypto wallet providers. Coinbase’s CEO, Brian Armstrong, commented on the matter, expressing his worries that if the new rules are implemented, they would be rather harmful to the users and the industry, in general.

At the same time, the popular cryptocurrency exchange OKEx opened withdrawals for the first time since they were shut down around a month ago, which might have prompted users to cash out the profits that they have been sitting on. In fact, CryptoPotato reported that around $500 million were withdrawn from the exchange as the crash started to take place.

In any case, the results are here, and it remains particularly interesting to see where will bitcoin go from here.

Market Data

Market Cap: $512B | 24H Vol: 181B | BTC Dominance: 62%

BTC: $17,132 (-7.98%) | ETH: $516.86 (+1.71%) | XRP: $0.56 (+74.08%)

Bitcoin Worth $500 Million Withdrawn From OKEx as Users Look for Other Alternative. Data shows that users withdrew a total of 29,300 BTC from the popular cryptocurrency exchange OKEx right after it resumed full functionality. This happened just as bitcoin plunged $3,000 in a matter of 24 hours. The exchange also resumed the withdrawals a day earlier than announced and during the Chinese trading hours.

Bitcoin Black Friday 2020: The Sales You Better Not Miss. It’s the end of November, and with this comes the long-anticipated shopping season. For many, this is a time to enjoy massive sales. We’ve taken the liberty of listing a few sales within the cryptocurrency field that aficionados might find interesting.

Facebook’s Libra Could Reportedly Arrive in January 2021 in a Scaled-Down Version. Libra, Facebook’s long-awaited cryptocurrency project, might be set to launch in early 2021. However, the version that’s potentially hitting the market is scaled-down and specifically intended to abide by the regulations of Switzerland’s FINMA.

Research Suggests Satoshi Nakamoto Launched Bitcoin From London. New research shows that activities associated with Satoshi Nakamoto from 2008 and 2010 might have taken place in London when Bitcoin’s network went live. This brings the experts a step closer to identifying who’s behind the legendary pseudonym.

6 Possible Reasons For Bitcoin’s $3,000 Daily Price Crash. Bitcoin went through a massive crash two days ago when it lost around $3,000 of its value in a sudden red candle. These are six reasons for which this may have happened and a brief outline of what might be next to come.

Coinbase CEO Fears Rumored Regulations Proposed By The Trump Administration. Brian Armstrong, the CEO of the leading US-based cryptocurrency exchange Coinabse, has said that he’s worried about the rumored regulations concerning third-party wallet providers having to identify their users. He said that this might harm users and the entire ecosystem.

Charts

This week we have a chart analysis of Bitcoin, Ethereum, Ripple, Chainlink, and Stellar Lumens – click here for the full price analysis.

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Disclaimer: Information found on CryptoPotato is those of writers quoted. It does not represent the opinions of CryptoPotato on whether to buy, sell, or hold any investments. You are advised to conduct your own research before making any investment decisions. Use provided information at your own risk. See Disclaimer for more information.

Cryptocurrency charts by TradingView.

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Source: https://cryptopotato.com/bitcoin-temporary-correction-or-no-ath-this-year-the-crypto-weekly-market-update/

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Blockchain

Ripple Plans To Cash Out 33% Of Its MoneyGram Stake With A Significant Profit

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  • The San Francisco-based payment protocol has filed a document on Friday with the US Securities and Exchange Commission (SEC). It reads that Ripple Labs has entered into an agreement with MoneyGram, which entitles Ripple to sell up to 4,000,000 shares of common stock.
  • Ripple’s option to sell these shares will expire “upon the earliest of March 31st, 2021, the time at which the maximum amount shall have been sold, or the occurrence of certain other customary events affecting the issuer.” 
  • CryptoPotato reported last year that Ripple and MoneyGram announced a strategic partnership. The initial term of the agreement was for two years. Ripple had agreed to provide a capital commitment amounting to $50 million in exchange for equity through the two-year period.
  • As per the SEC filing, Ripple owns 6.22 million shares of the giant money transfer company (or 8.6% of shares outstanding). However, the blockchain company has a warrant to buy up to another 5.95 million shares, amounting to a total equity position of 12.2 million shares or 17% of MoneyGram’s shares outstanding).
  • With the initial investment in 2019, Ripple purchased the MoneyGram shares at 4.10 per stock, which was a significant premium to the market price. 
  • Nevertheless, MoneyGram’s stocks (MGI) have surged in 2020, closing Friday’s session at $7.42. As such, Ripple can cash out with an 80% profit, despite the initial premium.
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Source: https://cryptopotato.com/ripple-plans-to-cash-out-33-of-its-moneygram-stake-with-a-significant-profit/

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Blockchain

South Korea To Postpone Previously Planned Crypto Income Tax

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Lawmakers in Korea are planning to postpone a recently considered tax on crypto assets profits. Reports say the tax rule delay will be about three months – instead of October 2021, January 2022.

The New Crypto Income Tax Rule To Wait Until January 2022

According to a recent media report, the South Korean congress plans to put off the recently considered cryptocurrency income tax rule. A planning and finance committee of the National Assembly has issued a report, which proposes the necessity of implementing the crypto income tax rule from at least 2022.

A few months ago, in July, a report stated that South Korea’s Minister of Finance and Economy believes that the country should come up with a tax on cryptocurrency trading and investing. Back then, he added that South Korea has been in discussion with other countries about introducing a new digital law.

In July 2020, the country’s Ministry of Economy and Finance amended its tax code, where it included the plan for charging residents a 20% tax on gains from cryptocurrency trading, which are worth more than 2.5 million Korean won (about $2,000).

Lawmakers in the National Assembly are to approve the Government’s plan, which was to carry into effect the cryptocurrency income tax rule from October 2021.

Reason For The Delay – Time Is Tight

As per the media report, the reason for the postponement of the crypto tax law is based on some concerns, raised by local crypto exchanges. They have claimed the lack of time to build their proper tax reporting system and infrastructure, needful for the process to begin.

The so-called “Specific Financial Information Act” would be enforced from March next year, so crypto exchanges have to complete the necessary reporting system by September 2021 for verifying their real names of deposit withdrawal accounts.

As CryptoPotato reported, South Korea announced the planning of the crypto income tax in June this year. The Asian country went through some different views on how and whether it should tax profits from cryptocurrency. Firstly, at the beginning of 2020, the Ministry of Economy and Finance did not consider that digital asset trading gains as taxable income. A month later, another local report said the Ministry believes that the nation could start label cryptocurrency trading profits as “other income.”

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Source: https://cryptopotato.com/south-korea-to-postpone-previously-planned-crypto-income-tax/

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