Who would have thought that you could use Financial services without banks?
Welcome to the world of DeFi.
DeFi also known as Decentralized Finance, eliminates the role of intermediaries in the Financial system. It lays the foundation of a Decentralized, Permissionless, and Transparent Financial ecosystem, thanks to blockchain technology.
We all know how the crypto market suffered last year. However, that did not stop the DeFi sector from growing.
DeFidevelopment is gradually entering the traditional financial sector. According to a report, the DeFi market size will grow by $125.1 billion by 2028. That’s a whopping 42.8% CAGR growth rate.
Infact, the Total Value Locked (TVL) in DeFi has reached $43 billion on several platforms.
This tremendous growth is due to the new trends that picked pace at the end of 2022. That’s not all! Experts predict that these particular trends will continue to get stronger in 2023 and beyond.
What are these trends?
How will these trends define the DeFi and the future of the Finance Sector?
Let’s answer all your questions in this blog.
5 Biggest DeFi Trends Emerging in 2023
Are you ready to explore the exciting world of crypto bridges? While investing in cryptocurrency can be daunting, navigating the many different blockchains can add a whole new level of complexity. But fear not, as crypto bridges can help you transfer value from one blockchain to another with ease.
Think of it this way: you have your coins and tokens on one blockchain, but you see an opportunity on another chain. How can you send your assets to the new chain? That’s where crypto bridges come in. These bridges allow you to transfer assets and information cross-chain, giving you access to new chains and the decentralized apps (dApps) on the new chain.
Now, let’s dive a little deeper. There are two types of crypto bridges: trusted bridges and trustless bridges.
Trusted bridges are centralized and require you to trust a central party for custody and transactions. It’s similar to using a centralized exchange or wallet.
On the other hand, trustless bridges use smart contracts and trading algorithms and don’t require you to trust a central entity.
Of course, there are risks involved when using crypto bridges, especially with trusted bridges. Custodial risk is when you allow a third party to hold your coins and tokens, while censorship risk can also be a concern. But don’t let that scare you off!
Trustless bridges provide a great alternative and eliminate the need for you to trust a custodian or worry about censorship. However, they do require you to trust the smart contracts that power the bridges.
In summary, crypto bridges are an essential tool for navigating the crypto economy, but it’s important to understand the risks involved. Whether you prefer trusted or trustless bridges, there are options available to suit your needs. So, go ahead and explore new chains and dapps with confidence!
Self Repaying loans
Get ready to have your mind blown by the latest innovation in DeFi – self-repaying loans!
This cutting-edge technology allows users to borrow against their own deposits, paying off their loans with the yield generated from their deposits. It’s like having your cake and eating it too!
So, how does it work? First, you deposit capital into a DeFi protocol like Alchemix, which allows you to borrow up to 50% of your deposit instantly. The high yields found in crypto lending make this possible.
The 50% of your deposit that remains in the protocol is used to pay back the 50% that was taken as a loan. As the principal pays back the borrowed money, the rate at which the loan is paid back accelerates. It’s like a snowball effect of repayment!
Let’s break it down with an example. You have some DAI- an Ethereum stablecoin, in your MetaMask wallet. You connect your wallet to Alchemix, deposit your DAI, and immediately borrow up to 50% of your deposit via the Alchemix USD (ALUSD) stablecoin.
You can then sell your USD for fiat currency, ether, or other cryptocurrencies. The DAI left with Alchemix generates a yield of approximately 10-15% at current rates, which is used to pay down the balance of the loan.
So as the balance of the loan gets smaller, the balance of collateral increases, and the rate at which the loan is paid off accelerates.
While the cryptocurrency market cap is small compared to traditional assets, developers have found a way to create synthetic securities that can trade on blockchains instead of traditional exchanges. Imagine being able to buy a synthetic stock of a company whose shares trade on the New York Stock Exchange or Nasdaq – it’s possible with smart-contract technology!
Platforms like Terra’s Mirror Protocol are leading the way in this trend, allowing users to purchase tokenized derivatives that track the value of underlying security.
Want to invest in Apple or Microsoft? No problem!
These synthetic stocks are programmed to track the price of the actual underlying asset and provide users with 24/7 liquidity, borderless transfers, and the ability to generate yield on a position by contributing to liquidity pools.
But synthetic securities aren’t just limited to individual stocks. Synthetic funds are also gaining popularity, with securities that track Exchange-Traded Funds (ETFs), such as S&P 500 ETFs. With tremendous liquidity, borderless transfer of ownership, and protection against censorship, synthetic securities are attracting new users at a fast rate.
Emergence Of DEX & AMM
Built on top of Transparent, Autonomous, Permissionless, and Non-Custodial blockchains, dApps like decentralized exchanges (DEXs) are a key part of the exciting new world of DeFi.
Unlike centralized exchanges (CEXs) that hold your funds and manage them on your behalf, DEXs give you total control over your assets. It’s no wonder that DEXs have seen a huge revival lately, especially after a number of CEXs shut down in 2022, leaving many users worried about transparency and control.
Yes, DEXs can be more complex and require more care from users to secure their private keys, but they offer a level of control and transparency that centralized platforms can’t match. And the growth potential for DEXs is huge, as more and more users seek alternatives to centralized exchanges.
Another hot DeFi trend is governance tokens. As you may have noticed, many of the top DeFi platforms have their own unique governance tokens, which are responsible for a whopping $11.9 billion in market cap.
So, what sets these tokens apart from your run-of-the-mill cryptocurrencies? Well, the primary purpose of governance tokens is to give their owners voting power over the underlying DeFi technology.
For example, let’s take a look at Compound, a DeFi project that allows users to lend and farm using tokens from other protocols. With the Compound’s Governance token, COMP, token holders can help govern the platform by voting on proposals and decisions.
But Compound isn’t the only one with a governance token game. Balancer, a decentralized exchange for digital assets, has also developed its own governance token, BAL. With BAL, users can not only trade their tokens with others, but they can also vote on platform proposals and decisions. And as the platform grows and evolves, so does the value of the BAL token.
And it’s not just exchanges that are getting in on the governance token action. Curve finance, another DeFi platform, launched its own governance token, CRV, in 2020. Instead of going through the traditional IPO process, Curve distributed CRV to its existing liquidity providers, giving them a say in the platform’s future direction.
With governance tokens taking centre stage in the DeFi world, we can expect to see even more exciting developments and innovations in the near future.
As pioneers in DeFi development, we stay on top of the latest trends in the DeFi landscape. These trends are constantly evolving and are set to shake up the way decentralized finance creates fresh possibilities in the cryptocurrency market.