DeFi shaking up the crypto market: a glance at the latest revolution!
We are not divulging a secret that the DeFi system in the cryptocurrency world is dominating the market. Most traders are looking up to it as a promising alternative to the ICO, which died a long time ago today.
That mostly comes from the booming the DeFi made mid-2019 when it brought a new definition for boosting profits.
While some look at DeFi -– the acronym for “decentralized permissionless financial infrastructure”- as the magic wand to make them rich over a night, others still believe that it is more of a speculative bubble than a guaranteed promise for wealth, which can always happen, but at the expense of others.
Playing it right can only be achieved by absorbing the idea in full, the thing we are touching upon in this article.
What is DeFi, and how does it work?
From the crypto- and blockchain-enthusiasts’ perspective, DeFi — Decentralised Finance, has been hailed as an open alternative to traditional financial services in use today, from savings, loans, trading — you name it, the list goes on.
The concept of DeFi is based on Smart Contracts on the blockchain (mostly on the Ethereum blockchain). While the latter used to be executed only through a third party between the contractors, DeFi simply allows a direct relationship between the contractors to execute the Smart Contract without liaison by other intermediaries, once all the conditions set by both parties have met each other. However, both parties should have their tokens, as this a requirement for DeFi to work.
DeFi applications, called “DeFi dapps,” enable the user to create stablecoins — the currencies known for being pegged to the US dollar in value.
Through those apps, the user can lend out money, take out loans, exchange assets for each other, and earn interest on cryptos. Furthermore, they have the option of automating the whole process of advanced investment strategies.
When did DeFi pop up?
The last year witnessed an astonishing success of the developing trend DeFi, where records from the end of 2019 uncovered that Ethereum addresses doubled in size throughout the year — the crypto on which DeFi is structured most.
Active ETH addresses have superseded BTC dynamic addresses incredibly today. The thing analysts attribute to the continuity of the rise of DeFi in 2020.
Last July, Bitcoin.com reported that decentralized exchange (dex) trade volumes reached as high as $1.6 billion, with $160 million in dex swaps in one single day. Furthermore, Ether prices jumped to two-year highs recently, as per the Coindesk.
The newborn DeFi rush resembles the late 2017 ICO hype: affinity and differences
· Some of the most prominent similarities
1. Both DeFi and ICO have reduced the circulating supply of ETH tokens, as participating in DeFi and ICO projects need to purchase and lock ETH or other tokens based on the Ethereum blockchain.
2. ICO and DeFi are both trying to “decentralize” the existing business way, and each of them uses token speculation to build applications and communities.
3. Both ICO and DeFi have had some impacts on the Ethereum blockchain, such as rising transaction fees, network congestion, etc.. Still, these effects have also stimulated the research and investment of Ethereum’s expansion solutions.
4. Both ICO and DeFi impacted the Ethereum blockchain, in particular, resulting in rising transaction fees, network congestion, but on the other hand, those side-effects also stimulated the research and investment of Ethereum’s expansion solutions.
· How do they differ from each other?
1- While ICOs were associated with tokens only, DeFi provides real cryptocurrency transactions and loan services and distributes tokens to the users/traders, which in turn allows investors to become project users immediately and enables the community to develop faster.
2- Although many DeFi project activities may benefit from temporary token incentives to “circulate,” these activities are all “real” activities that only provide real-time value to cryptocurrency traders in the form of liquidity. In contrast, most ICO projects have never released a truly usable product.
3- ICOs were all carried out through selling new tokens in exchange for ETH. In contrast, DeFi usually provides users with new tokens for free to obtain temporary mortgage ETH or other Ethereum-based encrypted assets.
The bottom line
The studies being carried out on the market regularly have shown so far many bright signs that DeFi stands chances of being broadly embraced in the financial sector, with the facilitation it promises on the blockchain. However, this new evolution is still under the telescope now, observed with a cautious eye, so that we keep updated on how to best serve our users.
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ExMarkets is a digital asset exchange platform powered by the state-of-the-art trading engine developed in-house. On the exchange, ExMarkets users can trade the most popular cryptocurrencies and gain the chance to participate in the token sales of the most promising blockchain and crypto projects through ExMarkets Initial Exchange Offering (IEO) LaunchPad.
ExMarkets has obtained two operational licenses for crypto-fiat gateway and custodian service provision by the Estonian regulator, making it one of a few certified players in the market. It takes only a few minutes to set up your account, and users are allowed to make deposits in Bitcoin, Ethereum, other supported cryptocurrencies, tokens, and, most importantly, Euros.
ExMarkets is a part of the CoinStruction liquidity framework, which is aggregating order-books from the most well-known cryptocurrency exchanges guaranteeing 24/7 crypto liquidity — a feature that can seldom be seen in the current market.