It’s an incredible time for BTC (Bitcoin) investors all around the world. Once again, the oldest cryptocurrency is on a bull run and is nearing the 2017 all-time high of $20,000. Unlike back in 2017, this bull run might be here to stay, at least for a bit. Analyzing these two occurrences, we see two major differences. First is the absence of initial coin offers (ICO). Second, you have the institutional investors’ involvement. Back in 2017, almost every other company out there with a digital asset had an ICO. This was before it was known that these offers are the driving force in defrauding people of hundreds of millions of dollars in the hope that their coins will gain value over time. Although ICOs are dead for good in 2020, there is a better innovation quickly gaining steam; DeFi (Decentralized Finance).
Over the last ten months, the DeFi industry has grown by more than 2,000%, reaching a $14 billion market capitalization. With innovative products in the line of lending and borrowing, several companies have come out blazing in support of DeFi. They have also created attractive protocols to get people to join. Companies such as Aave, Compound, and Uniswap have invested in creating attractive protocols that will make their investor’s money. With the demand and growth of DeFi, there is an opportunity for new products and innovations. One major problem with this is that these projects often need capital at an early stage. They also require a good amount of token liquidity to fully operate.
Problems Early-stage Crypto Projects face
Theoretically, ICOs were meant to solve fundraising issues without involving the authorities or mediators to oversee the projects. These ICOs were also meant to tackle the issue of liquidity in trading. Since they were scrapped, companies are left to find new ways to bootstrap liquidity for their cryptocurrencies and raise funds for the projects. DeFi has made it such that it’s now more important to have high liquidity on crypto tokens. This is to ensure that they can be traded on Automated Market Makers (AMM) and decentralized exchanges (DEXs). Without proper liquidity in the liquidity pools, you’ll find that tokens aren’t moving as fast as you would like. This means that the token has failed to attract many digital asset traders, and as such, the token price might suffer severely.
Since ICOs aren’t permitted anymore, companies have come up with other ways to raise the necessary funds to enhance liquidity and support new projects. This is by looking at Initial DeFi Offerings (IDOs) and Initial Liquidity Offerings (ILOs).
Decentralized Ecosystems and Liquidity Options
One of the most effective ways of exchanging crypto within a decentralized system is by leveraging automated market makers (AMM). With AMMs, liquidity providers add tokens to a pool whereby other users can borrow said tokens via smart contracts. This way, everyone in the circle makes money and eliminates the number of middlemen in trading cryptocurrencies. By leveraging a similar concept of liquidity pools, early-stage startups can create liquidity pools for their new token and, from there, conduct liquidity auctions to ensure the company’s proper liquidity footing.
Several DeFi projects such as Polkastarter, Poolz, and Bounce
Finance building platforms were the bridge between early-stage investors and project owners. All of these projects are endowed with cross-chain swapping protocols that make it possible to exchange the different tokens across the various platforms and blockchain networks. Doing this will enable the three companies to quickly raise funds for new projects. Also, to enhance liquidity while still enabling interoperability between the three platforms. This way, a company can raise funds without worrying about which application belongs to which blockchain network for special projects while still or exchange the different tokens.
After the ICO craze went limp, a new way of finance has cropped up. DeFi is set to be the biggest disruptor of the financial industry in years to come. Therefore, it’s prudent to find a way to raise funds in a way that protects both the investor and the company. Leveraging cross-chain swapping protocols to get liquidity might be the new way to raise much-needed finances.