The decentralized financial move was a ticking time bomb waiting to explode when it finally exploded in 2020. From automated market makers to the industry’s current obsession with liquidity operations, DeFi has grown tremendously over the past year.
Most of the decentralized finance applications are deployed on the Ethereum blockchain, bringing billions of dollars into the network and pushing them to the limit for operation. While the underlying network’s capabilities may seem like the only thing holding back DeFi, Ethereum isn’t disrupted either.
With Ethereum 2.0 poised to transition, there is a lot to expect in 2021. DeFi and Ether (ETH) have both performed exceptionally well, with the original Ethereum token recently hitting a permanent high and even hitting a dollar value. 2000 years
While some members of the vocal community believe this pump is the result of a bubble similar to the original coin show in 2017, there are many reasons to believe this is not the case.
DeFi has brought a fresh breath into the cryptocurrency space and has produced countless new tokens that have revolutionized decentralized lending and lending services. Short-lived Yam Finance, which aims to simplify ROI and transform blockchain governance into a business model, has quickly become one of the fastest growing platforms in the DeFi space.
Projects like Uniswap have revived the concept of decentralized exchanges using an automated market maker model. This system allows setting prices for trades without relying on counterparty liquidity. Instead of using order books, AMM estimates assets by using the token ratio in the liquidity pool to determine supply and demand.
The increasing use of Uniswap has led the DeFi engine for some time, with daily trading volumes rising from around $ 1 million to $ 1 billion between July 2020 and September 2020. Without being restricted to order records, Uniswap can fulfill orders in the chain i.e., transactions are made and settled directly on Network, and this has become one of Ethereum’s most prominent features.
This has greatly increased the number of smart contract calls in Ethereum, reached new heights in full employment, and created an increasingly paid token economy. However, while the robust DeFi ecosystem has offered higher levels of efficiency and more automation capabilities, it is still more sophisticated than the traditional offerings.
This is a major issue that DeFi must address before it can achieve broader adoption. The process of buying and selling cryptocurrency does indeed need some work from a consumer perspective, but in its current state, DeFi is still largely “shaped”. Companies like Yearn.finance have brought algorithmically managed wallets to DeFi, but there is still a lot of work to be done.
“Agriculture is not sustainable, but it helps launch the industry in the short term and attract developers,” said Ron Christensen, Cointelegraph’s veteran founder of DeFi MakerDAO, adding:
“Once the markets calm down, the next step for DeFi will be to merge with conventional finance and coding the real assets so that they can be used in DeFi’s on-chain protocols.”
He also mentioned that DeFi is currently completely dependent on the Ethereum platform, especially because it is strong in terms of compatibility between existing DeFi and ETH applications as a major source of security and stability. However, there may be other challenges to Divi’s growth.
This feeling is shared by many community members. According to Ilya Polosukhin, CEO of Near Protocol, a blockchain that allows decentralized applications to be created and interacts with Ethereum, DeFi can only continue developing on Ethereum.
“Most of the applications are designed to work with and around current restrictions, and will only moderately work in other strings,” he said. “It’s not just about the apps themselves, but the entire ecosystem of users, resources, apps, and other integrations.” However, there may be other challenges to Divi’s growth.
These issues include the launch of Eth2 and its potential impact on decentralized financing. The MakerDAO founder said this is likely to have less impact than expected with fewer new DeFi applications. “It is likely that Tier 2 scalability solutions with highly secure bridges will enable DeFi focused on retailing,” he said.
Introducing more complexity is cumbersome for the end user, especially with the rough UI / UX systems seemingly pervasive in the room.