Cryptocurrencies were the least affected in 2021, despite the numerous challenges that hit the financial sector. According to a Global Market Insights study, the market capitalization of cryptocurrencies reached $3 trillion for the first time in 2021. Because of how much cryptocurrencies have changed in value over the last few years, DeFi also known as decentralized finance, has the potential to grow in the coming years.The rising valuation of cryptocurrencies has paved the way for numerous ways for DeFi, including NFTs and metaverse, to drive growth and reshape the financial industry.
As there have been major developments and significant shifts in the financial industry
, 2022 seems profitable for decentralized finance. DeFi technology is on the verge of expansion. With the rise of Bitcoin and Ethereum, it looks like decentralized finance is becoming more popular.
In the digital age, tokenization compliments information-based technology as a decentralized way of capital allocation.”
Demetrios Marantis, Senior Vice-President and global head of government engagement at Visa
Decentralized Finance – Top 5 Predictions
It will be interesting to see how financial services will be run in the future with the help of new DeFi technology.
NFTs Valuation will Increase at a Rapid Pace
Non-fungible tokens (NFT) have inflated the importance of cryptocurrency
.NFT marketplaces like Mintable and Open sea and artworks such as Crypto Punks have grown in popularity. These platforms now have devoted traders and service providers. This indicates that the importance of DeFi is equally on the rise. Gaming, sports, and collectibles all had secondary sales of more than $15 billion in the last few years, according to a recent study by Messari.
Ethereum to Lead
Ethereum is expected to dominate in the DeFi wallet development trend. Ethereum is considered the best supporter of DeFi as it projects loyalty when it comes to democratizing financial transactions
in trading processes. According to JPMorgan’s study, Ethereum is the ‘most critical’ development in scaling the Ethereum network in decentralized finance. The study also revealed that the network’s 70% capital market share in DeFi can continue to rise in the coming years. Because of these changes, the finance industry has seen a big rise in DeFi platforms in a short time.
Crypto Investments to Become More Sustainable
These days, several crypto exchanges, financial institutions, and mining companies are offeringgreen products and services to their customers. Before the COVID-19 crisis, numerouspotential crypto investors were reluctant to invest in crypto because of the relatively low valuation and mining of Bitcoin (one of the essential cryptocurrencies). Another reason is the complexity of ESG regulations.
But interestingly, Bitcoin-based transactions and investments have become more sustainable in the new landscape of decentralized finance. For instance, Bitdeer, a giant bitcoin mining company, and Riot Blockchain Inc. (RIOT) are increasingly tapping into making crypto investments in renewable energy
sources, such as solar energy and geothermal, to reduce CO2 emissions in support of green finance. Such examples show that DeFi technology can be used to makecrypto investments, which will help decentralized financial services become more powerful in the coming years.
DeFi Seeks to Monetize Blockchain Technology
According to a survey by Deloitte, from 2017-2020, there weremore than 1 billion traders worldwide, and they traded approximately $159 billionsince then, and will increase to$256 billionby 2025 due to the rising investment interest.
And how will they be able to do it? The answer is blockchain technology
. The revolution in financial services is happeningonblockchain technology rather than on a server. In addition, mining has become more critical because of the rise of cryptocurrency, making trading tasks like transactions risk-free and effortless.
Proper DeFi protocols are being set up to allow free transferability of the amount for trading. It is because traders probably want to earn a return on their assets. So, DeFi technology, based on blockchain, seeks to monetize trading platforms in the coming years.
A survey by Toptal revealed that 63% of traders and 84% of developers are curious about investing in transferable digital assets between trading platforms. A similar scenario was recorded in 2019, where E-Trade was developed and was used for trading over blockchain technology. In fact, in 2020, the crypto trading platform Vanguard created a way for crypto owners to sponsor professional traders. If DeFi becomes popular in the next fewyears,traders will be able to invest large amounts and get faster returns from any part of the world.
DeFi Technology Hopes to Resolve Scalability Issues
Currently, the DeFi ecosystem is witnessing rapid growth.However, increasing transaction costs is one of thesignificant issues. For instance, the issue is rising because of the rapidly growing Ethereum gas price. The Ethereum gas cost needs to be paid to successfully execute a transaction over the Ethereum blockchain network. The price is set according to how much computational power there is and how much people want to use it.This is done through transactions on the network.
The average transaction price has been rising fast since the end of 2020. It has reached beyond $69 per transaction in 2021. As a result of the rising transaction costs, many projects are being launchedin the crypto space that provide cross-chain functionality on the DeFi platforms. If blockchain technology can be used, a decentralized finance system
hopes to keep costs for transactions across borders as low as they can get.
The Polkadot network is the most successful innovator in this space to diminish the same. The network enables users to create custom blockchains through cross-blockchain transfers of tokens and other assets. The network helps in efficient transactions by spreading them across multiple blockchain platforms. The best thing is that a few existing DeFi applications have been built on top of Polkadot’s network. The platform offers a new DeFi network where transactions are made more efficient and less expensive.
In a nutshell, 2022 will be an opportunistic year for technological advancements. The ecosystems of DeFi are expected to take center stage in the financial sector in the coming year. Moreover, many investors are also investing their money in the DeFi development process. Apart from that, the crypto verse is witnessing some ground-breaking innovations.
Decentralized finance is an unbundling of traditional finance,”
Rafael Cosman, CEO, and co-founder of TrustToken
Frequently Asked Question
How to make money with DeFi?
Making money with DeFi is an easy task. An individual needs to deposit the amount of money in the platform, further paying the returns under the APY (annual percentage yield).
What is DeFi, and why is it used?
DeFi means decentralized finance, a digital currency that operates on its blockchain. It is mainly usedto earn interest or valueon cryptocurrencies like Bitcoin and Ethereum.
How to trade in DeFi?
There are a few steps to trading in DeFi. The steps are:
Choose a crypto-basedwallet username
Understand and plan for Ethereum network costs
Invest and transfer Ethereum to the crypto-basedwallet
Trade on assets using Ethereum