Decentralized Finance or DeFi is the rockstar of the cryptocurrency industry this year. Many people saw it coming, but they wouldn’t have expected it to grow this fast. Yes, the DeFi space has been around for some time, but it really became wildly popular from a few months ago. When COMP token (Compound’s native crypto token) was available publicly for buy and sell, everybody was rushing to buy it. Since then, many other DeFi tokens also got pumped heavily on the market.
Interestingly, average cryptocurrencies outside the DeFi space also get some love from the crypto traders. Many cryptocurrencies like VET, XTZ or LINK have been steadily going up, even though Bitcoin has struggled to break past $9,300-$9,500 resistance level. Many crypto analysts try to connect the dots, and they give credits to the DeFi boom for the rise of traditional altcoins. Yes, they believe that the rising popularity of DeFi is the main reason behind altcoins’ growth this year.
Bitcoin market dominance has been slowly going down after the beginning of the DeFi boom. For comparison, back in May 2020, BTC was dominating the whole crypto space with over 67% dominance. Now it’s only slightly above 62%. This might keep going if the DeFi industry can keep its momentum and grow its user base.
The Main Force Behind DeFi
The main force behind DeFi is this concept called liquidity mining. Yes, DeFi’s lending and borrowing actions have been around since a few years ago. Compound (the most dominant DeFi protocol at the moment) has been live since some time ago. People have been using Compound and other DeFi lending protocols to gain interest in their Ethereum-powered crypto tokens. However, it never really took off before Compound introduced the concept of liquidity mining.
Liquidity mining is the action of lending and borrowing from the same DeFi protocol with the hope to get the DeFi native crypto token as the incentive reward. For example, if you borrow and lend from Compound, you will be rewarded with COMP tokens every day. The amount of COMP tokens you get would be proportional to the liquidity that you provide to the protocol.
This concept is new and has become very popular in the past 1-2 months. Since COMP blew up in the market cap rankings, other DeFi protocols started to offer similar incentives to attract crypto traders and investors to their platforms. Other popular DeFi tokens include BAL (Balancer), Aave, and SNX (Synthetix).
And since many crypto traders have been gaining a lot of profit from these DeFi tokens, they started to look elsewhere as well. Nowadays, you can see plenty of different altcoins with very positive price action due to their connections to the potential of DeFi.
For example, Cardano. ADA is rumored to be the next-gen smart contract platform that can help DeFi to scale better than Ethereum. Its Shelley mainnet implementation has attracted a lot of attention from the crypto community. There’s also Chainlink (LINK), where it has hit its all-time high price point due to its decentralized oracle technology that might be used in the future DeFi protocols. Basically, various altcoins are gaining momentum because they are being rumored to be the next big thing for DeFi.
The Need To Upgrade DeFi
But of course, the rising demand for DeFi means its features also need to expand. As of now, DeFi protocols are being used for simple actions in crypto, such as lending, borrowing, DEX (decentralized exchange) and other simple stuff. Many experts acknowledge the importance of pushing DeFi technology more than what it is currently capable of.
Check PlutusDeFi, the next-gen of DeFi where it implements privacy and insurance on top of the usual lending/borrowing features. PlutusDeFi integrates Aztec Protocol, OpenVPN, Tor Network, Tornado.cash and Camoflag.eth to help its users’ privacy. The importance of privacy in the public blockchain has been highlighted over and over again since many years ago. PlutusDeFi wants to specifically help DeFi enthusiasts to be as private as possible with their transactions.
PlutusDefi also integrates Nexus Mutual and Opyn into its platform. These integrations allow PlutusDeFi funds to be insured in a decentralized way. With Nexus Mutual, members can decide which insurance claims are genuine. All decisions by its members are recorded and enforced through the utilization of smart contracts.
There’s also InstaDApp which allows its users to seamlessly optimize liquidity mining across different DeFi protocols. InstaDApp becomes very popular recently due to its 4x COMP mining optimization, which is basically the automaton of the lending-borrowing cycle that allows you to get as many as COMP tokens you can possibly get.
If there’s a new popular DeFi protocol, InstaDApp would also get its hand dirty to optimize its users’ token rewards. The concept of InstaDApp is clever as it is not dependent on one specific protocol and it allows its users to optimize their token rewards without the need to understand all the technical differences.
Another creative DeFi protocol is dYdX which offers perpetual futures on decentralized exchange. As derivatives market get more popular than ever in the crypto space, it is refreshing to see dYdX bringing this exact concept to a decentralized ecosystem.
DeFi protocols are getting popular and are becoming the most mainstream thing in the crypto space. It has also helped other altcoins to become more popular than ever before. If there’s any alt season this year, it would be triggered by the rise of DeFi. The ever-growing demand for DeFi also means the ever-growing need for DeFi use cases expansion. The need for privacy, insurance and multiprotocol management will become more mainstream in the near future.