Why DeFi is Surging and Why You Should Jump In

12 Aug, 2020

While the crypto universe remains focused on the continued rise of Bitcoin (BTC), there’s another clear winning opportunity in the market:  DeFi.  In the past few weeks, a significant increase in the categories’ activity has prompted savvy traders to take notice and make moves to capitalize on the surging value of these assets.

Before considering what DeFi tokens to invest in, it’s a good idea to take a look at what DeFi (Decentralized Finance) is, why this asset category is growing rapidly, and what to look for when choosing these tokens.

So what’s DeFi?

DeFi stands for “Decentralized Finance,” and there are a lot of definitions in the crypto world for what the term means.  In essence, DeFi represents a category of tokens that are created to move traditional financial instruments – which are usually issued by centralized organizations – to the decentralized blockchain-based universe. The majority of the top DeFi tokens are built on the Ethereum (ETH) network, which ranks just behind BTC in market capitalization.

What Types of Services does DeFi Offer?

You’ll find a variety of DeFi products, including savings and checking accounts, loans, insurance, just about any service that is offered from a traditional bank or financial institution. Crypto investors find DeFi especially appealing as they can lend their crypto assets on these platforms in return for interest.

What are the benefit of DeFi?

Plenty.  First, by using open source software and blockchain technology to create these services and peer to-peer protocols, DeFi offers a world of opportunity for anyone who has a smartphone to take advantage of these products, including those who don’t have a traditional bank account.  DeFi eliminates the middle man, which reduces fees associated with owning a centralized account. Not to mention the security of conducting business on these blockchain-based platforms.

What’s a DApp?

Dapps are the programs that allow these decentralized financial services to function in the crypto sphere.  They can be blockchains, Tor networks (free and open-sourced software network)  or Distributed Ledger Technologies, according to securities.io.

“There is no central authority, corporations or agency that monitors and approves the business functions of these applications,” securities.io states. Which is what makes DeFi the perfect trustless way of doing business.

How Big is the DeFi runup?

Big. Very Big. In the past few weeks, while all eyes were on the Bitcoin price surge, DeFi has been having its own run up. On June 1, DeFi’s Total Value Locked was at $1.1B (USD) and has surged to more than $4.5B today.  Why is it happening?  Some crypto experts say it’s the growing number of Dapps and interest in the category.  Others look deeper at another underlying indicator of the categories growing popularity:  Oracles.

Oracles?

Yes Oracles. Dapps are like hunter gatherers, always looking for new data and information to feed their programs.  That’s where oracles come in: these third-party services link Dapps to data from outside the blockchain world via smart contracts.

Some crypto experts say the significant increase in oracle activity that is creating the current interest in DeFi.  The price for Chainlink (LINK), the top oracle, is up more than 500% in the past year and now is valued at more than $4.7B. Band Protocol (BAND) sits in the number two spot on the oracle list and is also experiencing recent price grains which may be attributed to the 43% increase in unique non-zero balance addresses.

So Why Should You Jump into DeFi?

If you haven’t already added DeFi to your crypto portfolio, take a good look at the current market conditions and find a way to diversify into this growth category.  Traditional financial institutions are now facing the fact that there is a growing awareness among consumers that blockchain-based platforms offer tremendous value and security.  As acceptance of virtual transactions grow, the need for DeFi platforms will continue to rise.  Investors who are banking on this growth in the long term will be set to realize future gains.  That’s one good reason to choose DeFi for your wallet.

And finally, think about the potential to enhance your crypto holdings by lending your coins via a DeFi platform.  Whatever the reason, take a look at the DeFi market with fresh eyes.  Beyond Bitcoin, DeFi is leading the way in the cryptocurrency world today.

Joyce Pavia Hanson
Contributor

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