What is “DeFi”?
The term “DeFi,” meaning “decentralized finance,” gained popularity in late 2018 as a catch-all for an eclectic set of blockchain initiatives aimed at removing human intervention from the financial services industry, but it largely remains a mysterious and more publicized term. domain of the cryptocurrency world, despite its proponents’ claims that it would lead to a faster, more inclusive and transparent financial system.
The idea is that automated mechanisms are used to facilitate transactions and loans between participants rather than a central intermediary holding liquidity. The programs run on blockchains, which are immutable public ledgers that track cryptocurrency transactions.
The numbers According to data compiled by MarketsandMarkets — between 2018 and 2020, the blockchain market nearly tripled from $1.2 billion to $3 billion, with that figure nearly doubling year-over-year , and with outsized returns and a wave of new initiatives helping to propel growth, it is expected to reach $67.4 billion in 2026.
Tangible Use Cases Stablecoins, cryptocurrencies linked to fiat currencies, for example the US dollar, have supported a peer-to-peer lending market, which has attracted the majority of popular applications. To create a “cash pool” that borrowers can draw from, owners contribute their assets. Interest rates are set automatically using “protocols” or algorithms based on supply and demand.
Lenders can obtain variable and constant interest payments as a result of ongoing transactions. In the event of default, borrowers provide additional security to the system by pledging their assets.
What do the critics say?
2023 was a year in which US regulators consistently dealt hammer blows to traditional cryptocurrencies following a series of significant failures sparked by last year’s market crisis.
But new battle lines have been drawn against DeFi in recent months.
The Crypto Assets National Security Improvement and Enforcement Bill was introduced by senators this year. It requires DeFi providers to adhere to the same rules as “centralized” companies.
Defeat the very nature and spirit of said DeFi platforms. Those who support cryptocurrency were understandably angered by the bill.
However, all is not doom and gloom. Andrew Griffith, MP and Economic Secretary to the Treasury, has categorically rejected the UK government’s proposals to regulate cryptocurrencies. On top of that, as a partner in his brother’s venture capital firm 9Yards Capital, which funds several DeFi start-ups, former UK Chancellor George Osborne has publicly expressed his support for the DeFi movement.
In short, DeFi is still nascent, free-wheeling, and generally unregulated. However, the total value locked in DeFi has increased 5x since July 2020 and with only £52 billion worth of value locked (explosive topics) – this is an industry that is rarely thought to disappear anytime soon.