Image Source: Jernej Furman, Flickr
Decentralized finance (DeFi) is an emerging technology in finance based on secure distributed ledgers similar to those used by cryptocurrencies.The departure of two of DeFi’s most famous founders, Andre Cronje and Anton Nell of the Fantom Foundation, from the sector this week marked a turning point for decentralised finance and perhaps digital assets at large. From the early days of The DAO in 2017 to the feverish summer of 2020 that few of us will forget and which inspired the launch of some of the sector’s biggest stars, DeFi has evolved at a break-neck speed. We now find ourselves in a place we all hoped we would: DeFi has grown exponentially and become the main vehicle of saving and investment for many people.
The speculation on the tokens behind many DeFi projects, however, has fallen off a cliff. Cronje and Nell’s joint projects, including YFI, Yearn Finance, Multichain, and Solidly, have seen the value of their tokens fall between 5% and 25% since the duo announced their departure. The tumble is also bigger than just these projects: DeFi first generation “blue chips” like Uniswap, Aave, MakerDAO and Compound have fallen by 80% against both USD and ETH since the first half of 2021.
Far from heralding the death of DeFi, though (as critics love to do), this is good news. This is because focus has shifted from token speculation to the actual utility of DeFi. As these tokens have tumbled, total value locked in the sector has increased from $53 billion in March 2021 to more than $203 billion today - growth of 291%. DeFi has, arguably, become what it was meant to be: a place for people to generate long-term wealth.
Speculation on tokens has moved elsewhere to spicier areas of the market like NFT‘s and the metaverse, leaving serious platforms and their customers to build a new financial ecosystem. In crypto, even more than other parts of the global economy, people are always looking for the next best thing. So anyone declaring DeFi’s death because token prices are no longer mooning, is entirely missing the point.
DeFi has to adopt TradFi best practice to survive and thrive
• Consumers are still frightened of crypto because of a lack of protections
• Regulation won’t come to digital assets for some time - it’s just not in the interests of the traditional financial system
• So providers must start employing these best practices on their own
• Top-class security systems are not enough, CeFi and DeFi platforms need to prove they have the assets they say they do
•The entire industry needs to undergo audits to encourage trust
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