2020 has been quite a tough year for many people and businesses all around the world. However, amid this crisis, cryptocurrencies and their underlying technologies have become quite popular. Success in the decentralized finance (DeFi) sector has been one of the biggest achievements blockchain technology has had in years. As the nation’s economies shudder, finance institutions and governments have to introduce stimulus packages and monetary policies in a bid to revive economies. Because of this uncertainty worldwide, asset classes that aren’t tied directly to financial institutions and regulators, such as cryptocurrencies, are getting a lot of love from investors, institutions, and businesses.
In particular, this year has been a fantastic one for people who have invested in crypto, more so with Bitcoin. Prices continue to rise, and market capitalizations are looking great for investors. Because of the popularity and value of crypto, such as Bitcoin, decentralized finance is drawing in a large number of people who seek to capitalize on the opportunity. Because of that, there are concerns that many people may lose their investment in projects that won’t work out for one reason or another. This may hamper continued growth and investments in ideas.
How things are right now
DeFi technology has made some very impressive leaps this year. As of August, the market for the first time surpassed the $7billion mark across platforms on the ecosystem. Today it stands at about twice that value with about $14 billion in assets. The growth of Defi has had an energizing effect on ETH (Ether) as many investors see the value of yield farming. This interest by financial institutions and investors has caused prices to tick upward. This has also resulted in more innovation to increase the number of applications running on the Ethereum ecosystem.
Smart money is realizing how much can be made from a booming prosperous DeFi sector and are taking appropriate measures to ensure they are part of the party. One thing experts agree on is that adoption and use of DeFi products and projects are largely linked to perceptions and how profitable they are.
The CEO and co-founder of Orion Protocol, Alexey Koloskov, believes that the success of DeFi technology in the future lay in the integration of platforms and centralized exchanges. Applications such as decentralized exchanges, for instance, can be a great help with the liquidity issue while still enabling people to have control over their asset ownership. Industry experts also say that solving challenges facing the DeFi markets, such as creating appealing user interfaces, will do a lot of good in encouraging the normal user to try it out.
Tough perceptions in the industry
The massive utility DeFi platforms bring to the table cannot be ignored, especially given the numbers flooding into space. As yield farming continues to get traction, many crypto users with large holdings of various cryptocurrencies stand to make a killing. Although some have made impressive profits from their investments, many more have ended up in tears over lost funds. That’s after malicious persons take advantage of the hype in this space to outrightly fleece investors with half-baked projects and outright scams. Sometimes DeFi projects, even from reputable sources, have been known to flaunt, leaving investors counting their losses.
Today, yield farming and DeFi are somewhat becoming synonymous. Although yield farming was first marketed to become an attraction for investors in the decentralized finance sector, it has now begun tarnishing the sector. Exit scams are increasing in frequency and brazenness, making many people willing to invest quite skeptical. This, in turn, slows down innovation and erodes trust, which is what happened in the case of initial coin offerings (ICO).
Although there maybe a couple of unscrupulous people out there hoping to reap from others’ sweat, the DeFi industry is here to stay. Since some projects, even from well-known companies, sometimes fail, there is no foolproof way of guaranteeing a project’s success. Therefore, you may have to take a leap of faith, which may mean sometimes going at a loss.