⛽ Is DeFi currently only for the 1%?
- ⛽ Is DeFi currently only for the 1%?
- 👀 Under the Radar
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⛽ Is DeFi currently only for the 1%?
The purpose of DeFi (Decentralized Finance) is to provide a system by which financial products become available on a public decentralized blockchain network.
The goal is to allow anyone to participate and use these products to earn higher interest rates than in TradFi (traditional finance) while making financial services more democratic, “It’s about empowering the customer.”
DeFi growth has exploded during the past year in dollar terms, the ecosystem appears to be driving the next generation of crypto innovations, having grown more than 20 times in 2021 alone.
The Total Value Locked (TLV) in DeFi platforms grew from around $47 Million in December 2020 to above $7.1 Billion in mid-November 2021. This growth has a lot to do with the appreciation of Ether, Ethereum’s token, which is the blockchain that houses close to 70% of all DeFi protocols.
These enormous growth did not come without a price tag. “Gas fees” the transaction fees that users pay to miners on a blockchain protocol to have their transaction included in the block have skyrocketed as the volume of transactions increased.
Gas can get expensive when the Ethereum network is experiencing a high volume of transactions. For each new block added to the Ethereum blockchain, there is limited space for how many transactions can be included. Due to supply and demand, miners are incentivized to accept transactions at higher gas fees, creating a bidding war that discriminates against small strade.
In the picture above, we can see that to swap tokens, users have to pay up to $161 dollars in gas fees. This does not make it very accessible to those who want to swap or stake small amounts. The graph below shows how gas prices have gone through the roof during the past months.
A few days ago, Vitalik Buterin, founder of Ethereum, released a document named the “End Game” in which he describes a plausible roadmap for the blockchain and outlines the things that would make a ‘big blockchain’ completely trustless and censorship-resistant. It basically encapsulates the promises of Etherum 2.0.
In a nutshell, the objetive of this second version of the Ethereum network, is to migrate from the present proof of work (POF) consensus to a proof of stake (POF) which will allow the protocol to increase the number of transactions per second, while lowering gas fees. Easier said than done, and we have been patiently waiting for this Ethereum-scaling solutions.
Are there any Options?
- Blockchains like Polygon (MATIC) seems to be thriving thanks to Ethereum’s scalability issues and extremely high gas fees, but it has been inundated with security concerns, rising gas fees with increased traffic (not as high as ETH), and poor marketing amidst Ethereum’s enormous popularity.
- Another major player in the space is Avalanche, which aims to conduct faster transactions with lower fees than Ethereum. Its token has more than double in price during the past three months with the idea that will take some of ETH market, but it’s not easy to compete with the reputation, prominence and capabilities of the largest blockchain available.
Thera many other chains in the space and many other potential protocols ready to take the crown away from Ethereum, while promising to solve the issues of scalability, gas fees, and security. But we are yet to see if they are able to do it prior to the Ethereum 2.0 launch.
In the mean time, it seems that DeFi it’s for the wealthy.
👀 Under the Radar
- Wrapped Bitcoin (WBTC) — Tokenized version of Bitcoin (BTC) that runs on the Ethereum (ETH) blockchain. Compliant with ERC-20 — the basic compatibility standard of the Ethereum blockchain — allowing it to be fully integrated into the latter’s ecosystem of decentralized exchanges (DeFi).
- The Graph (GRT)- Indexing protocol for querying data for networks like Ethereum and IPFS (InterPlanetary File System is a protocol and peer-to-peer network for storing and sharing data in a distributed file system), powering many applications in both DeFi and the broader Web3 ecosystem. The Graph currently supports indexing data from Ethereum, IPFS and POA, with more networks coming soon.
- Compound (COMP) — lending protocol that allows users to earn interest on their cryptocurrencies by depositing them into one of several pools supported by the platform. When a user deposits tokens to a Compound pool, they receive cTokens in return. These cTokens represent the individual’s stake in the pool and can be used to redeem the underlying cryptocurrency initially deposited into the pool at any time.
- 1inch (1INCH) — Decentralized protocols whose synergy enables the most lucrative, fastest, and protected operations in the DeFi space. Is a decentralized exchange (DEX) aggregator solution that searches deals across multiple liquidity sources, offering users better rates than any individual exchange.
- Yearn Finance (YFI) — is an aggregator service for decentralized finance (DeFi) investors, using automation to allow them to maximize profits from yield farming. Its goal is to simplify the ever-expanding DeFi space for investors who are not technically minded or who wish to interact in a less committal manner than serious traders.
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