Last year has to be hands down the year of DeFi. The sector grew from $700 million in total value locked (TVL) at the start of the year to over $20 billion by December. The number of DeFi tokens also increased, and currently, there are over 3,600 tokens with a market cap close to $25 billion. To some degree, the current crypto market bull run was sparked and sustained for most of 2020 by increased interest in DeFi projects and the solutions they were offering. And there is a reason DeFi is getting bigger with time as the sector aims to decentralize every aspect of the traditional financial sector, thereby availing essential services like credit, insurance and savings to the masses. Services that haven’t been easily accessible to the majority of those based in less developed economies.
DeFi has been around for roughly two years, and the majority of these projects are based on smart contract protocols like Ethereum that allow for the development of decentralized applications. Today there are various products that cater to different sectors of the financial industry. Experts believe the sector has so much potential and it's hard to argue against this given the level of innovation being witnessed. This piece aims to explore some trends that came up over the past year that are likely to continue in 2021.
Rise Of Automated Market Makers (AMMs)
Even though decentralized exchanges have been with us for a while now, it wasn’t until Q3 of 2020 where they rose to prominence thanks to offering users an alternative way to swap tokens compared to their centralized counterparts. In the past DEXes weren’t able to gain much attention despite offering better security and pricing than centralized exchanges. But one can argue this all changed in quarter three of last year where there was an increased use of DEXes employing automated market maker software (AMMs). Currently, these types of exchanges make up 93% of the decentralized exchanges market.
Three vital factors led to the increased attention of such platforms. They played a huge role in growing the liquidity of hundreds of different token pairs. They offered a reliable decentralized option when it came to swapping between different tokens and most importantly offered rewards to the community of users through governance tokens.
To show you how popular they got, a platform like Uniswap had a trading volume of over $15 billion in September. This figure represented $2 billion more than Coinbase within the same period.
Rise of Platforms Helping Aspiring Projects With KYC, Security,
As DeFi projects grew in numbers aiming to capitalize on the growing popularity, so did the scam projects. In an area that lacks behind when it comes to regulation, the crypto space has played host to many scams, and this wasn’t different for DeFi as some projects were abandoned and tokens locked on protocols stolen. It's such cases that saw the rise of a platform like Emerge DeFi, an all-rounded decentralized project that helps with smart contract audits, insurance, KYC, marketing, community management and legal consulting. Additionally, the platform serves as a DeFi token launchpad helping aspiring innovators who may lack the know-how take their products to the right audience and achieve this goal with less strain.
Emerge DeFi offers a technical infrastructure for DeFi projects to launch and scale. This platform isn’t only for entrepreneurs but influencers too who may have contracts with anonymous clients for promotion. If you doubt the legitimacy of the project you are promoting, you can employ Emerge DeFi to perform third party KYC checks to ensure your audience is protected and safe.
Rise of Governance Tokens And Yield Farming
Compound kick-started the yield farming craze after launching its governance token $COMP in Q2 of 2020. Yield farming offers users a way to profit by putting various digital assets into work and acts as an incentive for individuals to lock tokens on liquidity pools to provide liquidity and unlock new network tokens. As these farmers moved these tokens in different pools to earn the most returns, a speculative DeFi market was created that saw high demand for new types of governance tokens.
These are just a few trends witnessed so far towards the end of last year, and all of them should continue to grow in strength in 2021 as user experience and rewards improve.