What DeFi offers beyond lending for crypto speculation

What DeFi offers beyond lending for crypto speculation
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DeFi advocates say its fledgling industry will continue to grow and ultimately deliver on its promise.

“By removing the need to rely on intermediaries, DeFi makes traditional banking services much more accessible.”

Major DeFi protocols are now looking for exposure to real-world assets.

DeFi “has crossed the threshold of speculation and investment”.

Decentralized finance (Challenge), Which one is not so decentralized after all, is currently going through a period of soul-searching. Since Earth collapsed in May and brought a number of platforms with itthere has been a prevailing sentiment that DeFi offers little beyond circular lending and reckless leveraged speculation, the kind that can cause a chain reaction of failures if a domino falls.

Given that Terra’s failure led to other failures, there’s definitely something to that suspicion. However, figures working within the crypto and DeFi sector say that DeFi is still a young field, and that it will mature and solidify as it evolves.

Indeed, many argue that there will be increasing integration between DeFi and legacy finance in the coming years, as it will also find applications in areas outside of finance, such as the Internet of Things, digital identification and data storage. And the more it does, the less it will revolve around the unstable practice of lending and borrowing almost exclusively for speculation.

The potential of DeFi beyond speculation

There has been no shortage of criticism of DeFi since May, when Terra’s de-anchoring and collapse rippled across space.

In response to multiple platforms stepping in to help shore up the industry, software engineer-turned-crypto-skeptic Stephen Diehl noticed end of June that “most of the decentralization rhetoric in crypto is ambitious at best and just empty marketing at worst.” Meanwhile, Metamask co-founder Dan Finlay Told Vice in July that “a lot of the meltdowns that happened in this last round were things that masqueraded as DeFi but then kind of operated like shadow banks with massive leverage.”

Even a commentator suggested that “DeFi is dying” in response to the summer meltdowns, while two other prominent crypto-skeptics, David Gerard and Amy Castor, collaborated on a “dead and dying list” for Defi in late June. Meanwhile, FTX founder Sam Bankman Fried compared Challenge agricultural yield to Ponzi schemes.

Basically, the thrust of all this criticism is that too much of DeFi involves highly leveraged speculation: platforms would take deposits from users after promising high returns, then use those deposits to lend. to other platforms or make investments themselves. Of course, with the crypto market being so notoriously unstable and volatile, speculating with other people’s money is rarely a good idea.

However, there remain many DeFi advocates within the crypto industry, all of whom continue to assert that the space will continue to grow and ultimately deliver on its promise. This includes Jason Ma, the director of business development at Web3 infrastructure network Axelarwho tells Cryptonews.com that DeFi is a natural evolution of the current financial system.

“DeFi eliminates intermediaries and central oversight, making financial markets more accessible to retail investors and creating new investment opportunities. Decentralization democratizes banking and finance by ensuring easy access to financial services for all, especially in developing countries,” he said.

In terms of potential, Ma says DeFi is embracing many strengths from its use of blockchain technology, such as transparency that can improve due diligence and help people identify and avoid potential financial scams and harmful business practices. Likewise, immutability through smart contracts provides additional protection against bad actors and fraudulent transactions.

Other numbers agree when it comes to confessing the future potential of DeFi, even if it hasn’t quite lived up to it yet.

“DeFi is potentially one of the most compelling use cases for cryptocurrencies because it allows any business logic to run on-chain, transparently and without trust,” said Till Wendler. , co-founder of the object economy blockchain. technology provider sin.

This type of testimony is not hard to come by, with crypto commentators making bold claims on behalf of DeFi and where it will end up in the longer term. For

Pedro Isaac Lopez, Director of Growth at THORDEX WalletDeFi is an “essential component” in building a more inclusive global financial system.

“By removing the need to rely on intermediaries, DeFi makes traditional banking services much more accessible, opening up the range of innovative tools made possible by blockchain technology. These services and tools include trading, borrowing or lending, producing yield from crypto assets via poolingand yield farming,” he said. Cryptonews.com.

Lopez points out that, even after the recent downturn and ensuing meltdowns, the total value locked in ecosystem DeFi platforms hovers around $70 billion, by DéfiLlama. For him, this is a sign of the robustness of DeFi, and an indication that it will eventually be used to deploy and manage capital more efficiently and adapt to changing market conditions in ways that were previously impossible.

The present and future of DeFi

Skeptics will likely argue that such an ambition has yet to be realized, and may never be. That said, there are plenty of examples of DeFi platforms doing things in the present, rather than just signaling towards a utopian future.

“For example, the ManufacturerDAO recently passed a proposal to integrate an American bank into its guarantee scheme,” said Jason Ma, referring to the American company Huntingdon Valley Bankwhich now has a debt cap with MakerDAO of $100 million after Maker’s community voted to accept it into its ecosystem.

“He can borrow the sum in AID by depositing collateral in an off-chain account. Five more real-world assets have been added to MakerDAO, with more suggestions being discussed in the governance board,” Ma added.

Maker too recently voted to allocate $500 million of DAI to US Treasuries and corporate bonds, meaning DeFi has begun to play a role in allocating capital to the global economy. If you accept that banks, treasuries, and bonds are useful to the global economy, you may now need to accept that DeFi is useful.

Till Wendler also agrees that more top DeFi protocols are now seeking exposure to real-world assets, citing cases of B2B lenders leveraging DeFi to invest in businesses. offer real-world services, such as fair trade mint.

“We have seen some momentum in crypto mortgages. The industry is slowly but surely moving towards real results, and that’s exactly where it should be heading if it wants healthy returns and services,” he said.

According to Naureen Mustafa, Trade Development Manager at LiskDeFi has begun to transform real estate, insurance, and crowdfunding, as well as other industries.

“For example, DeFi eliminates the need for paperwork and all middlemen in the real estate industry. You can now buy real estate tokens or even full ownership just by signing a transaction through your digital wallet and you can own an asset without involving banks, real estate agents or government agencies etc. “, she said. Cryptonews.com.

A recent example of the merger of DeFi and real estate includes the partnership announced in June Between Cashier Protocol and Tower fund capitalwhich will see depositors with Teller receive interest payments for funding mortgages and loans made by Tower Fund Capital.

Of course, such partnerships represent initial steps, but they show that DeFi is growing and is not intended to be little more than a leverage mechanism for crypto speculation.

“While speculative lending and borrowing applications have seen the fastest adoption rates, the entire DeFi industry is in its infancy, and I strongly believe it will expand to include finance. ‘business, real estate, content production and distribution, and more,” said Mattias Tengblad, CEO and co-founder of the blockchain-based crowdfunding platform. Cority.

Many others agree that it is still very early days for DeFi, and that the recent crises experienced by Terra and Celsius will only help it mature. As Naureen Mustafa concludes, there is innovation at all levels of the industry, from core blockchain protocols to decentralized applications to front-end user experiences.

She said: “He has crossed the threshold of speculation and investment. Serious use cases are currently being developed, and DeFi services are more transparent, powerful, and technologically advanced than a centralized financial system.

Learn more:
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DeFi didn’t break – Dan Morehead and Joey Krug

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