Within the blockchain and crypto arena, few things are currently as talked about as DeFi. It is being touted as the future of not only blockchain but finance as a whole and projects spring up each day that leverage its capabilities. Decentralized Finance (or ‘DeFi’ as it is commonly called), is the use of blockchain to enable various financial transactions to take place among users without the need for a traditional middleman.
This means greater levels of speed, privacy, and reduced cost. DeFi had its moment in 2020 and 2021 is gearing up to be yet another impressive year in the space.
DeFi In 2020
DeFi’s dominance in 2020 saw billions of dollars locked on various platforms by the middle of the year. Whether it was investors making use of decentralized exchanges, staking tokens in various ecosystems to earn interest, or taking out loans leveraging smart contracts, there seems to be little limit to what can be done with DeFi.
A number of factors contributed to the rise of DeFi in 2020, including the COVID-19 pandemic. The decline in traditional stocks and the dire financial situation of millions around the globe meant that many were turning to alternative means to invest and make money. DeFi, in many ways, addresses the majority of consumer pain points.
It has very low entry requirements and does not need a large amount of money to get started. Thanks to blockchain and smart contracts, a great deal of privacy can be maintained and there is less chance of being duped when carrying out transactions.
Consumers flocked to DeFi in 2020 and in 2021, we can expect to see even more engagement with DeFi and more money being locked in than ever before.
What DeFi Can Do In 2021
If 2020 was the year that DeFi saw its boom, 2021 is gearing up to be the year that it matures and properly solidifies its place within the financial space. Thanks to the growing popularity of cryptocurrency and blockchain, more people are entering the digital asset space and this is good news for DeFi.
It also means that DeFi will need to smooth out its current road bumps if it is to accommodate the new influx of users. Some of this improvement is already taking place. Take Ethereum 2.0, an upgrade to the Ethereum Network, which is one of the largest DeFi platforms in use today.
Etherereum 2.0 will make the network not only more secure but more scalable, meaning it will be better equipped to handle larger amounts of work. The increased security also means that incidents such as the hacks that took place several times throughout 2020 can be prevented.
In 2021, DeFi can also see its capabilities expanded upon. In 2020, it was all about staking and DeFi-based loans. While these are good, they are not the only things that DeFi is capable of. Betting, Dapps, and even insurance are gaining momentum within the DeFi space and in 2021, we can expect more attention to be given to these often overlooked possibilities.
As DeFi becomes more popular, it will ultimately have to grapple with the possibility of regulatory pushback. The wider crypto industry has had to come to some level of compromise regarding things like know-your-customer requirements and taxation and as DeFi becomes more popular, it will be interesting to see how regulators respond to it and how it evolves.
As DeFi enters a crucial point in it is important that it evolves to accommodate its growth and the requirements of the outside on its way to becoming the next big thing in finance.
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