Over the last year, the decentralized finance space has been making waves in the financial sector, building on blockchain technology to decentralize a multitude of banking services. The adoption of DeFi services has been steadily on the rise, and all kinds of assets are making their way onto the blockchain.
With nonfungible tokens popularizing digital art ownership representations, blockchain technology is creeping into the most unexpected places, and DeFi is fuelling its expansion. These unique and sometimes quite valuable tokens are especially relevant today, with art galleries closed due to restrictions pertaining to the global pandemic and cultural experiences now taking place online more than ever before.
During 2020, DeFi saw an explosion in the kinds of ways liquidity can be generated, with marketplaces for financial products, community-based social and governance tokens, and unique art pieces. Today, a significant amount of Bitcoin (BTC) is used as a store of value, but that isn’t what it was created for. Slow transaction times, high fees and a history of rising value hinder Bitcoin’s use as a payments system, but that hasn’t stopped the blockchain industry from creating others.
The advent of programmable smart contracts catalyzed the formation of our modern decentralized finance ecosystem, making financial services accessible to anyone with an internet connection. The expensive overheads of centralized banks have made international transfers slow and uneconomical for most use cases. However, by implementing a set of interweaving protocols, decentralized finance delivers alternative ways of distributing value to different communities across the world.
The traditional financial system works for most, but it could be doing a lot better. While blockchain isn’t quite ready to take the mantle from it, today’s decentralized networks have big ambitions, and as access to digital assets continues to improve, people around the world are increasingly engaging with the global economy sans trusted intermediaries, banks or lawyers. With more development resources allocated to DeFi systems than ever before, blockchain is the next frontier for any financial services company worldwide.
Scattered but strong
The internet has changed how data and information flow across the world, and this evolution of communication channels has had a profound effect on the banking system. As the world begins to shift to platforms that offer quicker registrations, faster service and more reliable products, the ways of centralized banking stick out in stark contrast.
Smart contract platforms allow people to interact with several decentralized applications using a single financial identity. With nearly 2 billion people on the planet not having access to financial services, lowering the barrier for entry is in everyone’s best interests.
In fact, even some centralized banks have started offering cryptocurrency custodial services, allowing users to store their cryptocurrencies in a secure manner with a party that can be held responsible for its security. While this might seem like it goes against the ethos of decentralization and blockchain, centralized custodial services might actually be beneficial for the broader industry.
Brian Kerr, CEO of the Kava DeFi platform, told Cointelegraph: “To me, having a bank use Kava on the back end to deliver loans and great APYs safely to their users is a natural progression of banks, finance and the evolution of fintech services.”
According to Kerr, holding cryptocurrencies is much scarier for the average citizen than fiat, since transfers cannot be reversed, making errors all the more costly. “I believe banks supporting digital asset custody is a great step to making crypto available to mainstream users,” he said.
However, as fintech companies continue to improve their products and services to provide better experiences to the end-user, the current schema for development hasn’t been altered much in the last few decades. Furthermore, as pointed out by Anton Bukov, co-founder of the 1inch decentralized exchange aggregator, as banks start to provide huge amounts of stablecoin liquidity to DeFi platforms, APY for lending and borrowing will decrease in the future.
Over time, networks have evolved to cater to different needs, and with Web 3.0, blockchain isn’t just decentralizing power in financial systems; it’s redefining value. In the near future, these systems are likely set to grow stronger and will eventually be seen as a valuable proposition for all kinds of businesses.
The introduction of automated market makers was a critical factor contributing to both decentralized finance and blockchain’s overall growth during 2020. Before AMMs, decentralized exchanges weren’t nearly as popular as they are currently. Instead of using order books to match trades in a decentralized manner, AMMs make users trade with a smart contract, improving liquidity and removing counter-party risk.
With decentralized exchanges like Uniswap occasionally reporting volumes higher than Coinbase Pro, there’s talk of whether centralized exchanges are sustainable in the long run. However, while DEXs have certainly improved over the last couple of years, replacing order-book exchanges doesn’t appear to be on its agenda.
While trading fees have become increasingly competitive, so too have the services offered by cryptocurrency exchanges. From initial exchange offerings and staking to lending and borrowing services, exchanges could begin to defend their positions by increasing margins from other lines of business and face competition from their decentralized counterparts. “Just as banks don’t earn on deposits, they earn on the back-end services and cross-selling of other financial products — so too will centralized exchanges as the industry advances,” Kerr said. Bukov added:
“Coinbase named DEXs as one of the biggest risk factors for their business during preparations for the upcoming IPO. I think they could try to compete in this space, too, while offering their own L1 solutions or DEXs, for example.”
In a nutshell, an AMM consists of token pair pools, where their ratio in the pool determines the price of the individual tokens. Uniswap is currently the most popular AMM DEX, allowing anyone to join liquidity pools for any token pair. This provides liquidity to the pools while pushing some risk to participants for a share of returns.
As AMMs become more and more complex, some platforms have even incorporated features such as multi-token liquidity pools and more efficient algorithms for calculating asset prices. Unlike IEOs, there are no gatekeepers preventing someone from launching a token or platform, and while this can be exploited by users with malicious intent, it could lead to some very interesting projects over the years to come.
Interoperability is in
While most DeFi applications currently run on Ethereum, interoperability is slowly becoming a reality. This will give developers the freedom to choose different platforms to best suit their individual decentralized applications. With platforms like Cosmos and the Substrate-based Polkadot, developers can now even create interoperable blockchains tailored to their application’s requirements.
Today, developers rely on monolithic layer-one blockchains that provide open smart contracting platforms. “These platforms try to do everything well and nothing great,” said the Kava CEO. “In the future with interoperability, these platforms will remain useful for prototyping, but developers will select the most specialized and optimized services for their app and use cases.”
One of the biggest trends of late 2020 was the heightened demand for access to Ethereum’s liquidity and economic activity on other blockchain-based protocols. From wrapped Bitcoin (wBTC) to blockchain-based data storage, the space has seen a surge in activity on cross-chain platforms.
For example, Kava built with the Cosmos framework has seen significant growth, offering collateralized loans and staking opportunities for various cryptocurrencies. The platform uses its Kava token for governance and to secure the network through staking.
Such governance tokens enable network participants to vote on critical parameters such as the system’s global debt limit, collateral ratio and savings rate. In cases where the system is undercollateralized, the Kava token even acts as a reserve currency to be minted and sold until the system is recollateralized.
Both Ethereum and Cosmos require a significantly higher number of validators per chain than Polkadot. Compared to Ethereum’s 111 validators per shard, Polkadot’s claim of offering equivalent security at a minimum of five validators per chain requires more analysis.
Polkadot’s low minimum number more easily allows for collusion between validators for individual parachains, and the DOT slashed from malicious validators is slashed from nominators as well. Along with the lack of a minimum stake requirement, this could lead to some risky situations from a nominator’s perspective.
Decentralized finance’s growth has been unprecedented and overwhelming. Monthly DEX volumes have crossed $55 billion, which is also how much the total stablecoin market capitalization currently is. DeFi outstanding debt is over $9 billion, but decentralized finance is still a toddler against the broader financial services industry.
With fresh innovation constantly around the corner, there’s good reason to believe accessibility and variability among DeFi applications will improve with time. As gas costs on Ethereum continue to fluctuate, at times to prohibitive levels, blockchain projects are racing to create better scalability solutions such as layer-two protocols. Ethereum 2.0 promises to solve many of the issues currently faced by its predecessor, but how well the network will perform in practice will only be known in time.
Furthermore, as long as gas costs keep fluctuating, DeFi protocols will continue to attempt to poach users and, in turn, liquidity from Ethereum. Another problem the DeFi space faces as an infant industry is its reliance on an experienced user base. Today’s applications are usually designed for traders familiar with DeFi systems in mind and offer services that aren’t always useful to the average consumer, such as auditing tools and on-chain data oracles.
As the industry continues to extend its functions, projects are continually creating better utilities for DeFi tokens. Some platforms now even allow using nonfungible tokens as collateral for peer-to-peer loans, increasing the liquidity of these digital collectibles to the level of any other monetized asset.
“I believe strongly in the future of NFTs as a primitive or financial construct. However, NFTs today are mostly stupid,” said Kerr. While NFTs are incredibly powerful as a concept and despite bringing the power of blockchain technology to fields such as real estate and intellectual property, DeFi needs deep, liquid markets to consider a collateral asset useful. “It will be a long time before NFTs are useful as collateral in DeFi. By definition, NFT markets are very illiquid and thus make for horrible collateral,” he added.
According to 1inch co-founder Bukov: “Decentralized Finance projects should issue NFTs, sell them at auctions, and donate a significant part of profits to charity.” DeFi’s progress over the last few years shows promise for its future, but while DeFi has accomplished a lot in its brief ongoing lifespan, its best years are likely yet to come.
Cryptocurrency Market Cap Surpassed That of Apple
With bitcoin, ether, and more alternative coins reaching for the stars with new records in the past 24 hours, the cumulative market capitalization of all crypto assets surged to new record levels above $2.2 trillion. Interestingly, this means that the total crypto market cap exceeded that of the world’s most valuable company – Apple.
Crypto Market Cap Surpasses Apple’s
After weeks of suffering beneath the $60,000 price line, bitcoin finally emerged victorious today. In a long-anticipated moment from the community, the primary cryptocurrency initiated an impressive leg up that resulted in breaking the previous ATH record of $61,800.
Furthermore, BTC continued higher and marked its latest record of over $63,700. The first-ever cryptocurrency pulled the rest of the market with it, and ether followed with a new all-time high of its own at $2,300.
XRP has been on a roll as well, with another 34% surge and a 3-year record at $1.85. The situation with most altcoins is also quite bullish with impressive increases.
Naturally, this led to a substantial boost for the cumulative market capitalization of all crypto assets. According to data from CoinGecko, the metric added about $150 billion in a day and reached a new all-time high at over $2.260 trillion. Just for reference, this is more than a 10x increase in a year as the crypto market cap was down below $200 billion at the same time 2020.
With its latest record, the market capitalization of cryptocurrencies breached that of Apple. Data from AssetDash shows that the world’s most valuable company has a market cap of $2.230 billion as of writing these lines.
In other words, the crypto market has become more valuable than the giant US multinational technology company.
Are We Still Early?
One of the most discussed topics within the community is whether or not “we are still early.” The general answer so far has been – yes. Or, as Tyler Winklevoss said recently – we are still in the first inning.
But surpassing Apple sounds like a big deal, which could question that narrative. However, it could also have another side to the story.
Although exceeding Apple’s market cap is indeed an impressive milestone, it’s worth noting that this is just one company. Yes, the largest as it seems, but just one.
The top five companies by that metric, which also include Microsoft, Saudi Aramco, Amazon, and Google, have a total market cap of over $9.3 trillion. Furthermore, the estimated market cap of gold is over $11 trillion.
So if we can somehow compare the cryptocurrency market to just these companies or just gold, then the narrative is still that we are early.
Ethereum Is Undervalued and Can Go Another 500% From Here: Analysis
Ether could double-down on its recent bull run by surging 500% more which will take it well within a five-digit price territory, suggested a former hedge fund manager and popular crypto analyst, Teeka Tiwari. He further claimed that Ethereum could surpass bitcoin as the most valuable crypto due to the high levels of utilization.
ETH to $13,000?
The Ethereum blockchain is arguably the most used network in the cryptocurrency space. From several stablecoins running on top of it to being the underlying technology behind two of the most popular manias – NFTs and DeFi.
Although this enhanced utilization comes with drawbacks of its own, such as delayed transactions and high fees, it has positively impacted the price of the native cryptocurrency. ETH is more than 200% up since the start of the year as it painted yet another all-time high of over $2,3000 earlier today.
Despite this massive increase, the popular trader Teeka Tiwari still sees the asset as “wildly undervalued” and predicted more bullish developments right around the corner. He believes ETH’s value will expand by 500% from its current position by the end of 2020 alone.
With ETH trading above $2,200 as of writing these lines, such a sizeable surge will take it to roughly $13,000 per coin. The asset’s market capitalization will skyrocket to over $1.5 trillion.
Moreover, Tiwari asserted that ether will eventually surpass bitcoin’s market cap, which is situated at just shy of $1.2 trillion now.
“In my view, two trends – DeFi and decentralized apps (called dApps) – will make Ethereum the most valuable software platform in history. Because when you eliminate the need for a third party or middleman, you can dramatically lower costs.” – he added.
Scaramucci and Cuban Support?
Tiwari outlined that he’s not the only believer in the future of Ethereum. He referred to recent positive comments from SkyrBridge Capital’s CEO – Anthony Scaramucci, and the billionaire investor and owner of the Dallas Mavericks – Mark Cuban.
The former White House Director of Communications recently highlighted Ethereum’s fundamentals and predicted that the native digital asset will become a “sticky” cryptocurrency and “a store of value.”
On the other hand, Cuban referred to ETH as a “true currency” that he started accumulating four years ago and currently comprises about 30% of his cryptocurrency investment portfolio.
ShapeShift Launches Decentralized Trading Through THORChain, RUNE at ATH
In an announcement on April 13, the Switzerland-based non-custodial crypto company stated that it was now fully integrated with THORChain, enabling users to trade native Bitcoin with Litecoin and Ethereum for the first time.
The move is a big deal because it is the first time a decentralized exchange has enabled crypto asset swaps across different blockchains without the need for bridging technology or custodian controlled wrapped tokens.
Launch all the things! 🚀 🚀 🚀 pic.twitter.com/lgkUxl2QJ6
— ShapeShift 🦊 (@ShapeShift_io) April 13, 2021
THORchain Crossing the Chains
THORchain launched its long-awaited MCCN, ‘multi-chain chaos net’ platform on Tuesday, April 13 amid a great deal of hype from the crypto community including ShapeShift CEO Erik Voorhees.
Less than a day before the launch, Voorhees stated that it would be a huge deal for crypto.
“Native cross-chain decentralized exchange. Never been done before. Arguably the biggest event in crypto this week, though it may not be obvious for a year or two.”
THORchain uses its own native token RUNE as collateral and an intermediary, so those wanting to trade BTC for ETH, for example, will have the trade go via RUNE yet the end-user will not notice.
The revolutionary platform has been in development for three years and yesterday’s launch could bring big improvements to the rapidly evolving DEX space.
Voorhees continued to extol its virtues:
“We saw the power of this technology and wanted to bring it to our users immediately. This is a continuation of our commitment to offer users an easy, self-custody platform for their decentralized trading needs.”
ShapeShift DEX users, including those making trades via the new THORChain integration, can also earn FOX Tokens with every trade which enables eligibility for other rewards on the platform.
FOX Pumps 45%, RUNE Hits ATH
ShapeShift’s FOX token exploded on the news, pumping 45% to reach an intraday high of $1.30. The exchange-based token has made 180% over the past month and hit an all-time high of $1.60 on April 6.
THORchain’s RUNE token has also been on fire, surging 19% on the day to hit an all-time high of $14.60 at the time of writing according to Coingecko.
RUNE has doubled in price over the past fortnight and pumped a monumental 1,150% since the beginning of the year.
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