Of late, it has been a wild ride in cryptoland, with Bitcoin leading the charge and a number of altcoins hopping on board. Lawrence Summers, the ex-United States Treasury secretary, has even declared that Bitcoin was “here to stay”.
No surprise then that all around the world, regulators are paying more attention than ever to the fast-evolving token economy.
The SEC recently brought a lawsuit against Ripple, once the 3rd largest cryptocurrency by market capitalization. The move can be seen in light of the tightening regulatory landscape, as well as the UK Financial Conduct Authority’s ban of selling cryptocurrency derivatives to retail investors two months ago.
The Financial Crimes Enforcement Network (FinCEN), US Treasury Department wing, recently announced new impending regulations that would require US citizens to report on their crypto assets on virtual asset service providers, if exceeding USD 10,000 .
This move sparked off reverberations as far flung as SE (Southeast) Asia where both the Malaysian and Singaporean financial regulatory bodies tightened their regulatory framework further for virtual assets.
DeFi Trend Continues its Surge
With the tightening regulatory landscape, the trend towards decentralized finance (DeFi) is only growing stronger. Using blockchain-based tools and services to mimic banking, investing and trading, DeFi brings about the decentralization and digitalized trust that has been missing in the traditional finance sector for a while.
Removing the need for centralized intermediaries, DeFi conducts all transactions on peer-to-peer decentralized protocols. Personal data and ID are not even required to use DeFi DApps (decentralized applications).
DeFi Lending Platforms
One of the most common DeFi use cases is open lending platforms that allow you to either lend your digital assets out to other users to earn interest or borrow digital assets.
Typically borrowers deposit collateral to borrow crypto and the lender earns interests, all conducted in a trustless P2P manner. Among all the DApps, Defi lending has the highest growth rate and is the most prevalent contributor for locking crypto assets.
Stable coins are digital assets that peg their values to other assets in order to reduce volatility. The most common fiat currency that stable coins are pegged to is the USD. Tether (USDT) and MakerDAO’s DAI are popular cryptocurrencies pegged to the US dollar.
The DAI in particular is interesting because while it is pegged to the US dollar, it is backed by Ethereum and allows for using a basket of crypto-assets as a reserve.
Euro-pegged stable coins are not as common as US-pegged stablecoins and decentralized ones are even less common. Recently, MiMo DeFi, a Euro stable coin lending platform launched its decentralized stable coin Parallel (PAR) on the Ethereum blockchain, kept stable by collateral locked up in smart contract vaults. Its PAR is a Euro alternative to the USD-pegged DAI from MakerDAO with a similar decentralized governance model.
Weaved into the DeFi space, stable coins are popular among lenders, borrowers, liquidity providers, and traders due to their stability while still remaining liquid.
One of the simpler DeFi use-cases is staking, the process of helping to participate in the network governance of POS blockchains. This is done by either delegating digital assets to a validator node or by simply holding these assets in a compatible wallet.
Helping to secure the blockchain by staking assets will earn you rewards that the network automatically delivers into your wallet.
Decentralized exchanges, or DEXs, are digital asset trading platforms that operate without a central authority. Automatic market makers (AMMs) like Uniswap are the most common types of DEXes, using simple mathematics to set the price of tokens in a liquidity pool.
As mentioned above, centralized crypto service providers are seeing increased measures imposed on them. Some crypto exchanges have delisted popular cryptocurrencies such as XRP, ZEC, XMR and DASH recently. These moves have actually helped the shift towards DEXes in the crypto sphere.
This month’s Jan 2021 DEX volumes are already set to break September 2020’s all-time highs.
Data compiled by The Block indicates that with eleven days before month end, current DEX volumes have already exceeded USD 26.01 billion. This surpasses DEX volumes back in Sep 2020 which touched USD 26.6 billion.
Marketplaces like OpenSea operate in a similar fashion to decentralized exchanges. However, instead of digital assets, they allow users to trade digital goods or non-fungible tokens (NFTs), using a smart contract-based escrow system.
Institutional Interest Continues
Against the backdrop of regulatory doom and gloom, Bitcoin whales continue to increase. Glassnode, blockchain data provider, indicates that the number of Bitcoin whales — 2,425 — is at a record high.
Big spenders seem to be projecting confidence in BTC value, future or otherwise. 2020 has seen the entry of a number of institutional investors. Paul Tudor Jones (billionaire hedge fund manager), Grayscale (investment firm) and MicroStrategy (tech giant) all possess BTC holdings in the hundreds of millions and billions, helping to increase demand for the asset.
The burgeoning DeFi space is only going to get busier as institutional interest continues, regulators tighten their scrutiny on the space and blockchain developers and entrepreneurs continue to churn out increasing numbers of DApps that provide more benefits for users.
Time to hop on board the DeFi revolution.