A Chinese proverb says that “When the winds of change blow, some people build walls and others build windmills.” DeFi is becoming the “windmill” to adapt and innovate in today’s financial infrastructure.
Decentralized Finance (DeFi) has been perhaps the buzzword of 2020 in crypto, 2020 was the year when the movement rocketed. DeFi tokens in the markets, reaching all-time highs. And there’s a sense that this is only just beginning.
Let’s jump straight into some of the trends that are likely to drive DeFi over this year.
Layer-two adoption unlocks more throughput, and ultimately, more volume
The worst-kept secret in DeFi, and blockchain in general, is that under the current network conditions, DeFi will struggle severely to handle the load of a mainstream wave of users. Ethereum mainnet, where most of DeFi currently lives, can be compared to a single lane highway prone to severe traffic jams. The more jammed up the Ethereum mainnet becomes, the more expensive it becomes to participate in staking, saving, lending and borrowing on-chain. It is not uncommon for users to face costs of over $100 for interacting with DeFi.
For this reason, much attention has been focused on layer-two networks that could raise DeFi’s glass ceiling by freeing it from the limitations of Ethereum. Instead of running all the processing associated with DeFi applications on a single blockchain, layer-two allows developers to offload the heavy lifting to a network of side chains while keeping a bulk of liquidity on Ethereum.
Regulation will intensify, at least in the US
The rise of crypto in 2020 has garnered increasing attention from regulators — all with varying perspectives.
The US for example has introduced more than 32 blockchain and crypto bills to date. The STABLE Act proposal introduces strict regulations that would treat stablecoin issuers under similar treatment as traditional banks. Proposals around deanonymizing crypto transactions over a certain threshold, where the recipient and sender info will be required has also surfaced raising much concern for the crypto community.
Due to rapid technological advancement, regulators around the globe are still trying to understand how to instill AML measures in a decentralized ecosystem. Lawmakers worldwide will be expected to further analyze the nature of DeFi and how to best regulate it.
Overall, regulation enhances trust and creates a safer environment for innovation, but too much regulation can stifle progress. Hot debates around crypto compliance will no doubt make important headlines for 2021.
China will make the fastest progress
From a regional perspective China is leading the global blockchain game and will continue this role in 2021. Blockchain is taking China to the level, which is well beyond the present reach of other global market players. China’s further ambition is to provide a global public infrastructure via this Network. Beyond that, while other countries or regions like Europe are thinking to launch their own Digital currency, China is almost ready to issue their Crypto yuan.
DeFi project to watch in 2021
ECOC Financial Growth (EFG) is another borrowing and lending dApp, built on the ECOC blockchain. It allows users to borrow and lend cryptocurrency from other users. All are conducted through the smart contract protocol with an ECRC-20 standard. On the other hand, lenders can earn a staking reward as GPT token when they stake EFG in the dApp. To do so, users must first connect their ECOC wallet and deposit ECOC in the dApp as collateral to borrow EFG. Another way is users can also buy EFG on the crypto exchanges, MXC and Boboo.
The tokens used on EFG dApp are called EFG and GPT. So, if a user deposits EFG, they will be given GPT in return as a reward.
The special thing about GPT is this token can be used to delay the settlement of mortgage assets. GPT provides the need for contract clearing extension because it can be used to increase the grace period for margin call notifications. It has become the main factor in the protection of investors’ risk extension benefits in EFG’s lending behavior.
The interest of every token will fluctuate depending on the supply and demand of their native cryptocurrencies. However, typically, it will still probably be more than the interest offered by a savings account. Like other dApps, EFG has the advantage of not requiring identity checks and lower transaction fees. Also, the risk of borrowing is minimal.
Although there is still a lot of uncertainty for DeFi heading into 2021, it is clear that DeFi is here to stay. There may be new protocols, new regulations, new tokens, but DeFi as a concept has established a foothold strong enough to withstand future headwinds. For now, DeFi has been limited primarily to a core group of blockchain fanatics, but the next milestone will be mainstream adoption in 2021 and beyond as DeFi blends more and more with the traditional fintech world.
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