Defi, defi, defi. You can’t go anywhere in crypto these days without having that contraction thrown at you. 2017 was all about the ICO, 2018 was about surviving the bear market, and early 2019 was a toss-up between IEO and STO. Now, as we prepare to enter Q4 of 2019, it’s all about decentralized finance. Peer past the hype and you’ll find some genuinely useful products are being built that promise to accelerate greater financial inclusion in the form of a crypto-powered alternative to the traditional monetary system.
Decentralized finance, according to Defiprime.com, “is the movement that leverages decentralized networks to transform old financial products into trustless and transparent protocols that run without intermediaries.” The site filters defi products and services into 16 categories that include DEXs, derivatives, identity, insurance, lending, stablecoins, and staking. Most of these projects are built around Ethereum, but decentralized finance – also known as open finance – is not exclusive to any one blockchain. BTC, BCH and other leading crypto assets are also being deployed for the same purpose, examples of which we’ll consider shortly.
First though, here’s a cross-sample of what’s new in Ethereum’s world of defi. Firstly, Ethereum and Consensys co-founder Joseph Lubin has thrown his hat into the ring, announcing support for Codefi. The project will comprise an array of defi products produced by Consensys focused on data, networks, assets, and payments, with a team of around 40 dedicated to expediting defi growth under the Codefi banner.
Deversifi, the DEX formerly operating as Ethfinex, is currently attempting an ambitious pivot from operating as a centralized platform to a community controlled one. To achieve this, it’s bringing back The DAO, only its decentralized autonomous organization will hopefully last significantly longer than the original. Governance will be at the heart of the new-look Deversifi’s operations, while a major burn and reallocation of its NEC token will help realign incentives between stakeholders. While Deversifi’s role in the exchange ecosystem is miniscule, observers will be taking a keen interest in the success of its decentralization attempts.
What’s New in Decentralized Finance
To gain a better understanding of what’s being made, and how it ties into the broad goals of decentralized finance, here are some projects of note that span various verticals.
One of the most exciting defi fields is derivatives, where the possibilities for creating contracts that derive their value from an underlying asset are virtually unlimited. Synthetix enables all kinds of decentralized synthetic assets to be created, correlated to traditional commodities, and futures contracts to be created for crypto assets. More than 20 synths have been completed on the platform already, which includes peer-to-contract trading that allows traders to execute orders in a decentralized manner, without the need for an orderbook.
Lending is the most crowded defi vertical, with more P2P lending protocols than you can shake a stick at. There’s $350M locked up in Compound and Maker alone, which are the leading defi lending protocols by some distance according to Defipulse. To help keep track of which lending protocol offers the most attractive rate, Staked has developed its Robo Advisor for Yield (RAY), a smart contract-based bot that automatically allocates crypto assets to the highest yielding opportunities.
RAY could still use some optimization, but provides an insight into the future of decentralized lending. For those willing to tolerate centralized lending in the pursuit of higher interest, keeping your coins with a platform like Cred, a partner of Bitcoin.com, will earn up to 10% on your BTC and BCH holdings.
The endgame for many defi proponents is to create a decentralized banking system where anyone can participate and credit checks and account closures are a thing of the past. One of the most interesting projects making headway in this regard is Monolith, which promises to be nearing its goal of creating the first decentralized bank. It provides a noncustodial contract wallet that incorporates features such as a daily send limit.
Because it’s impossible to leave the current finance rails behind altogether to transact in the real world, Monolith offers a Visa debit card in the U.K. and 30 EEA countries. It aims to ultimately operate like a decentralized Wirex, explaining: “Unlike every other service provider, your funds won’t disappear if we do. As long as there are Ethereum nodes running, nothing can prevent you from spending your ETH.” The service is available on iOS now, with an Android app coming soon.
What Ethereum Can Do, Bitcoin Can Do Too
While Ethereum has grabbed the defi mantle, it’s worth noting that many of the products and services being developed have been available within the Bitcoin and Bitcoin Cash ecosystem for years. There isn’t the same smart contract functionality, which limits some of the tools that can be built, but this is countered by Bitcoin’s robust security and greater liquidity. P2P exchanges that make use of multisig include Hodlhodl (BTC) and local.Bitcoin.com (BCH). Merchants who wish to accept BTC in a decentralized manner can do so using BTC Pay Server, while noncustodial solutions for BCH include Bitcoin Cash Register.
These tools are now being complemented by an array of new defi products that are starting to ship. Many will fail, a few will thrive, and some will transpire to be not nearly as decentralized as their architects made out. Collectively, however, there is cause for optimism that the advancement towards open monetary systems will bring about greater equality, and provide broad access to a suite of decentralized financial services.
What are your thoughts on the defi movement? Let us know in the comments section below.
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