Ever since John Maynard Keynes laid the foundation for modern financial markets, investors have primarily held positions in stocks, bonds, and cash. Modern economic history has examples of traditional investors who made it big by investing in regular asset classes.
But the primary problem associated with these fiat-based investments and financial models is their inherent centralization, which has led to high inequality in the distribution of wealth, and profits. You may have had to make do with the short end of the stick—fortunately, Bitcoin decentralized currency settlements. However, the DeFi (decentralized finance) market addressed the gnawing disparity in financial market democratization with smart-contract-based financial instruments. Now, one can lend, borrow, invest and trade in an algorithm-based open market that runs without intermediaries.
The DeFi market has reduced accessibility barriers for various financial tools and has experienced exponential growth over the past year. What? You didn't know? Well, maybe it's time.
2020: The Growth of the DeFi Market
The DeFi trend essentially began with Ethereum-based protocols — Synthetix and MakerDAO. What these decentralized derivatives and lending projects started has now transformed into an ecosystem with close to a $50-billion valuation.
Yes! That's correct, and the above graph is a testimony of the same.
However, it wasn't all that flowery in the beginning. The phase from 2017 to Q1 2020 was pretty slow in growth. The DeFi market took off in earnest only from June last year and has not looked back. You would wonder what spurred this massive growth of a seemingly nascent space.
Well, COVID-19 happened, and along with it occurred a 2008-like financial catastrophe (more enormous in proportion, to be precise) that took down traditional markets, businesses, and economies of entire nations.
At a time when people saw the value of their earnings and savings in bank accounts depreciate incessantly, the burgeoning DeFi space provided limitless opportunities to leverage a variety of open-source programmable financial protocols to make a lot of money. The video below will explain how.
Whether leveraging DeFi/decentralized exchanges (DEXs) to stake tokens in various yield farming or liquidity mining contracts, flash loans or lending crypto to earn interest, DeFi is an instant global portal for investors to erase the losses incurred from participating in traditional markets.
Still wondering why? The entry barrier is way too low, and one doesn't need to have a tonne of cash to get started. Thanks to the meticulously programmed smart contracts in protocols like Compound Finance, Balancer, Aave, etc., all transactions happen in real-time without third-party interference.
By now, you must have started getting second thoughts about staying invested in traditional markets. If not, here's something that will force you to consider your options.
DeFi Market Outlook for 2021
Even with bitcoin price surpassing its previous all-time high, 2020 was arguably the year of DeFi. Massive adoption of decentralized apps (dApps) for accessing various cryptocurrency-based financial markets points out that the future potential for DeFi is extremely promising, and this is just the beginning.
2021 is shaping up to be the year in which the decentralized finance trend will snowball into something much more significant and transform the world of finance as we know it today.
Scaling Solutions and Network Bridges Will Fine Tune DeFi for Mass Adoption
Currently, the network is undergoing an upgrade phase to Ethereum 2.0. Upon the complete shift from Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake, Ethereum's throughput and security will shoot up, and massive, full-fledged adoption will happen in no time.
Until then, Layer 2 solutions will help transfer the dApp load from the main Ethereum chain to numerous auxiliary chains that are fast and inexpensive to operate. This will happen via rollups.
Rollups are a kind of Layer 2 solution that allows bundling of transactions off-chain. These bundled transactions can then be submitted to the leading Ethereum network in batches, enabling it to scale 200 times more transactions than before, essentially benefiting DeFi market participants.
Apart from Rollups, it will also be possible to scale Ethereum through multiple and technically sustainable blockchain bridges. Through bridges, DeFi users would have the option of accessing liquidity across multiple blockchain networks along with their functionalities.
The NFT Boom Is Here to Stay
The idea surrounding tokenization of unique artworks, video moments, or photographs, or for that matter, any real-world item, has quickly found its way into mainstream media, creative, and sports circles.
NFTs will only keep gaining more popularity as they facilitate the proof of authenticity and ownership of digital art, in-game items, and other digital collectibles. NFT marketplaces will flourish left, right and center as they enable people to buy and sell all kinds of unique digital tokens using ETH (Ethereum's native cryptocurrency), BNBand stablecoins.
The NFT market has already shot past $500 million, and the day isn't far when the figure will touch $1 billion. Just so you know, the DeFi market has already crossed paths with NFTs with NFTfi and Rocket, NFTs can now be used as collateral for peer-to-peer loans. This will enable NFT holders to treat their digital collectibles like any other monetized asset. Indeed this isn’t possible in the world of traditional finance.
It is said that ignorance is bliss, but after reading all of the above, blissful ignorance of the opportunity that the DeFi market is offering will surely not help you win as an investor since it is just not some other market. DeFi has set in motion the fundamental restructuring process of finance itself. It is not a good idea to ignore a good revolution. Even if the risk is high, the rewards are much higher.
There are some great tools and platforms that you can leverage to get involved. One such tool is a DeFi wallet. Options are myriad. However, only a few can allow you to explore the entire world of DeFi. Eidoo is a DeFi wallet that doubles up as an excellent crypto asset management platform.
Also, pNetwork’s native token $PNT is well-integrated within the Eidoo ecosystem. It can be said the token is at the core of the Eidoo-pNetwork integration. $PNT provides access to various services, such as the eidooCARD, its cashback program, and the Atomic Swap feature.
As for Eidoo wallet, it boasts of numerous features such as:
- Instant SEPA on and off-ramp for fiat
- Access to a Decentralized Exchange
- Over 1000 supported tokens
- Access to the Visa-backed crypto debit card — eidooCARD
- Yield farming opportunities
- An in-built NFT manager
Only a few past events have brought radical and irreversible changes in our lives. The birth of the Internet, cellphone, fintech, e-commerce, social media were some of them. People who got involved early (per the curve below) have found themselves on a green, pasture-laden side of their life.
The inception of the DeFi market is one such watershed event that demands mass participation for the sake of freeing up finance itself for those who are left out by so-called systems built by centralized institutions. If you are looking to be a part of an actual financial inclusion movement indeed, DeFi is your best bet.
Are you ready to participate?