Emerging Top Trends in Crypto and Defi
Top Trends in Crypto and Defi to Look Out for In the Next Few Years
June 03, 2022 05:00 PM
Emerging Top Trends in Crypto and Defi
June 03, 2022 05:00 PM
According to data from DeFilama, Decentralized finance (Defi), has increased exponentially from $112 Billion in 2020 to $229 Billion in TVL. This once niche sector is now attracting large VC funds as well as an influx of institutional-grade players like Sequoia Capital, a16z, and many others. Here are the top Defi platform trends for the next few years after watching the evolution of Defi over the years.WBTC can be used to create an Ethereum-based bitcoin derivative. Bitcoin owners can use the derivative version they have of their BTC to lend, stake, or yield farms on Ethereum.
The supply of WBTC rose from 600 BTC to 124,000 BTC in 2020. WBTC accounted for about 1% of the total bitcoin supply as of late 2020. Some predictions suggest that this number could rise to 5% by early 2022, which would allow for cross-chain Defi Staking platform transactions.
After the creation of ETH, the ERC-20 token standard (the one used in most smart contracts transactions) was created. Many ETH holders wish to convert their ETH into an ERC-20 token. This is possible with WITH. It seems to be extremely popular. It was reported in September 2020 that more than 5% of Ethereum had been converted to WITH. By 2020, more than 5.5 million WITH had already been created. Options contracts, a traditional financial product, are also growing in popularity in the crypto space. Hegic has been the most popular marketplace for trading crypto-based options. Hegic makes it easier for minors and crypto-holders to shorten certain assets and hedge their risks.
Hegic estimates that the total ETH daily options volume was between $50-$120 million as of December 2020.BTC's daily options volume was between $300 and $800 million. Hegic predicts that the combined daily trading volume for both ETH options and BTC options will reach $9.2 billion by 2023. This scenario will see the BTC and ETH options markets worth approximately 10x what they are today. Tranche lending is another form of financial innovation moving from traditional finance to crypto. Tranche lending products are a way for lenders to finance more volatile and risky loans. They take a pool of loans, segregate the proceeds and then distribute them to investors who have a different risk appetite. Diversification is possible for asset exposure. The tranche lending product owners have the option to choose their risk exposure.
Investors with lower risk get the aggregated interest first. Investors seeking higher returns are paid with higher income that may or not be earned. The pioneering tranche lending in crypto is Bainbridge and Saffron Finance. This is more crucial than ever for the crypto world. Without some type of tranche lending process, it is nearly impossible to obtain reliable fixed income due to crypto assets' inherent volatility. The rise in Defi Insurance is directly related to the Defi derivative product and Defi derivative product growth. In many ways, these insurance contracts are very similar to traditional insurance. Defi insurance is a decentralized model that matches Defi users who are looking for income with those who want to lower risk.
Nexus Mutual is an insurance platform that allows Defi owners to pool funds to insure other smart contracts. If the covered risk is realized, insurance buyers pay a premium to the pool.
Nexus Mutual's growth has been from approximately $4 million TVL (July 2020) to about $250 million TVL (February 2021). The amount was more than doubled in a single year to $500 million in February 2022.
Bridge Mutual also offers an easy way to generate interest and provide coverage, or to protect your assets by purchasing coverage. Bridge Mutual, much like Nexus Mutual, provides peer-to-peer insurance coverage to stable coins and crypto exchanges as well as smart contracts. In a private placement, the platform raised $1.6 Million. It was also oversubscribed by $9 Million. Financial products such as insurance, derivatives, and tranche or collateralized loans will continue to gain in importance as the Defi market continues to grow.
Worldwide, there are more than 2,000,000 gamers. They spend more than $159 billion each year. This number is estimated to reach approximately $256 billion by 2025. Both players and creators are keen to further monetize this industry as more people spend their time on it.
Blockchain gaming is one-way developers try to make money.
These video games run on a blockchain and not on a central server. Players can also "mine" tokens through certain tasks within the game. To allow in-game transferability, popular Defi protocols will be required. Many game-based cryptocurrency owners will want to see a return on their investments. Toptal's survey showed that 62% and 82% of gamers indicated an interest in investing in digital assets that can be transferred between games. The crypto world has surpassed its expectations. In 2019, Ubisoft launched HashCraft, the world's first blockchain-based video game.
Beatport, a crypto gaming platform, announced in 2020 that it would be creating a way to allow crypto owners to sponsor professional gamers.
Beatport stablecoin holders can place their tokens in new tournaments to earn interest. They can also back a player to earn a percentage from his or her winnings.
The increasing transaction costs are one of the issues associated with rapid growth in DeFi's ecosystem. This is evident in the rapidly rising Ethereum gas fee.
Ethereum gas refers to the amount that must be paid to execute a transaction on the Ethereum blockchain. The supply and demand for computational power required to process transactions on the network determine the price. Since the end of 2020, the average transaction fee has been increasing fast and even exceeding $69 per transaction by May 2021.
The record Defi liquidations of February 22nd and 23rd 2021 were caused by record-high gas fees.
The entire Ethereum blockchain network has been slowing down due to increased transaction costs and the increase in the number of users who use Defi apps on Ethereum. Many projects in crypto are beginning to offer cross-chain functionality as a way to address this problem. Blockchain technology is a way to make transactions and smart contracts cross between chains.
This interoperability is expected to allow Defi platforms to scale more easily than they can on the Ethereum network. Polkadot has been the most innovative in this area. Polkadot allows the cross-blockchain transfer of tokens, data, and other assets. You can also create your blockchains. It makes transactions more efficient because they are spread across multiple parallel blockchains.
The price of the Polkadot governance currency (DOT) has risen to more than $50 at its 2021 peak, from below $10 in August 2021. A few Defi applications have been developed on top of the Polkadot network.
In 2020, it made the transition from the Polkadot network to Equilibrium. Equilibrium promises an interoperable Defi environment in which users can lend, trade, stake, and trade assets as well as create smart contracts across multiple blockchains. Equilibrium moved one step closer to this goal in February 2021. It was announced that Curve Finance (the largest crypto-automated market maker) will be creating an exchange on the Polkadot Network. Avalanche, another network of multiple blockchains launched its Avalanche Ethereum Bridge platform in February 2021.
The platform offers a new Defi network that will make transactions more efficient and cheaper. The project hopes that it attracts its decentralized apps (Dapps), such as Pangolin and a decentralized exchange.
It has teamed up with Binance, the largest cryptocurrency exchange in the world, to permit Dapps created on the Binance Smart Chain and the Poly Network for cross-platform use.
To achieve cross-chain interoperability, the Blockchain Services Network (BSC), has also used the Poly Network. The Chinese government runs the BSC and it is used to create an "internet of blockchains."
The balance between efficiency and decentralization is one of the most difficult challenges in the decentralized finance sector. Transactions can be made faster by centralized cryptocurrency exchanges such as Coinbase. Coinbase is a publicly-traded company so they aren't able to provide decentralization. Decentralized exchanges (DEXs), which are based in this area, come into play.
Crypto owners can transact directly with one another on DEXs. You don't need to use an intermediary. As we have already mentioned in our post on crypto trends, Uniswap has the largest DEX space. Uniswap is the largest DEX in the space, followed by Sushiswap which accounts for 68%. Almost all DEX platforms are seeing significant growth.
The total DEX trading volume for January 2021 was more than $60 billion, the highest level ever recorded.
The two first months of 2021 saw more DEX trading volume than all previous months combined.
Buyers and sellers can submit bids and request prices via an order book. The exchange then clears the trade at the best price.AMMs are liquidity pools for a DEX. This is similar to most other Defi ecosystems. In exchange for interest, holders of crypto assets such as ETH loan those assets to the liquidity pools. The AMM collects transaction charges from the DEX. These fees are paid by traders on the exchange.
These fees are used to pay interest to true owners of assets in the liquidity pool. Based on an algorithm, the AMM determines which trades in the pool. Some commentators believe this trading method has greatly improved DEX liquidity. Consensys reported that 93% of all DEXs use AMMs in November 2020. Uniswap is a great example. It was the first decentralized AMM. If Uniswap is any indication, it appears that the AMM method works. Curve Financing is the AMM with the largest TVL (basically, the amount invested in liquidity pools).
Although social and fan tokens may be slightly different, they are generally in the same group as NFTs. Creator tokens or social tokens are tokens that an artist or creator issues to make it easier for them to monetize their work. Social tokens are a way to financialize creators directly. They create a mutually beneficial relationship that is both direct and mutually beneficial for all parties. To increase community engagement, brands and clubs may issue fan tokens. These Defi token development allow fans to access fan-related perks such as voting on club decisions and merch design and other exclusive experiences.
Governance tokens, a new trend in crypto-assets, are issued by protocols to give token-holders voting rights on projects that support the protocol's development. These tokens can be used for collateral and other purposes. MakerDAO's Maker tokens (MKR), were the first to introduce governance tokens. Today, top Defi near protocols such as Curve Finance and Uniswap have accumulated between $4-18 Billion in TVL each from their governance tokens.
DAI, which is a more decentralized and collateralized stablecoin, can be associated with cryptocurrency collaterals. This allows for minting these stablecoins while also introducing high-quality collateral. We now have an opportunity to provide users with better price stability than collateralized stablecoins by introducing an algorithmic non-collateralized trend in stablecoins. TerraUSD (UST), for example, maintains its fiat currency by using a dual token system that includes the LUNA token as its governance token and its fee-paying token.
Devi's rapid growth has led to unsustainable transaction costs and increased fees due to its siloed infrastructure. Users were faced with high transaction costs and gas fees, making cross-chain solutions necessary to ensure scalability. Cross-chain technology is a solution that allows smart contract transactions to be performed across multiple chains. This makes blockchain and cryptography interoperable. Polkadot allows users to create custom blockchains, and distribute them across multiple chains to complete transactions and asset movements more efficiently. The Cosmos ecosystem is another cross-chain technology that acts as a foundation layer for multiple independent blockchains. These are interconnected to allow interoperability between chains and facilitate communication. Frontier, a Defi aggregator platform, promotes interoperability in the Defi space. It connects Defi activities across different blockchains via a single interface that is easy to use.
Derivatives can be described as financial securities, contracts, or contracts that derive their value from other assets. Because they allow investors to invest in assets that are tied to stocks, commodities, or currencies, derivatives markets are common in traditional finance. Contrary to conventional finance, which has a central authority that creates derivatives, Defi allows anyone to create and manage them. Defi makes it possible for anyone to create and manage derivatives on the top blockchain protocol. Synthetix is an example of a platform that allows users to create decentralized blockchain assets tied to other assets like stocks and commodities.
The Metaverse was popularized by Facebook's change of branding to Meta. More importantly, all Metaverse projects were validated by the company's shift of focus and commitment to building a digital ecosystem. Many established institutions began to see the benefits of the digital society transition.
Expect more institutional adoption of crypto and investment across all sectors of the industry. The trend is not being ignored by fashion giants such as Nike and Adidas, who have opened shops on Metaverse platforms such as Sandbox and Decentraland. Walmart, an eCommerce giant, is also making a move into the Metaverse. Microsoft's purchase of Activision Blizzard, a game developer, is yet another example of the value these companies see for the future of Metaverse.
ETFs (exchange-traded funds) allow investors to have easy access to a variety of asset classes. Crypto ETFs will make crypto assets more accessible due to the difficulty of purchasing crypto assets. Traditional investors will be able to include digital assets directly in their portfolios, without needing to navigate crypto exchanges. Some crypto futures ETFs were launched in 2021, including the ProShares Bitcoin Strategy Strategy ETF. It quickly gained $1 billion worth of assets under management within 24 hours of trading.
The industry is growing as the world grows. In 2021, crypto gaming had $80M to $100M daily transactions. This is a sign of the shift in individuals from traditional gaming toward Defi gaming. Solutions such as Frontier wallet, which allows users to access multiple features from one place, are a result of the Defi ecosystem's growth. We see a future in which users will be able to navigate between Defi solutions and features with ease, despite trends like the Metaverse, which is an intersection of NFTs, AI, and NFTs, and we continue to see these trends develop. Contact us today and get to know more about Cross-chain Defi Services.