Traditional Investors Cannot Ignore the DeFi Trend. Here’s Why.

Ever since John Maynard Keynes laid the foundation for modern financial markets, investors have primarily held positions in stocks, bonds, and cash. Modern economic history has examples of traditional investors who made it big by investing in regular asset classes.

But the primary problem associated with these fiat-based investments and financial models is their inherent centralization, which has led to high inequality in the distribution of wealth, and profits. You may have had to make do with the short end of the stick—fortunately, Bitcoin decentralized currency settlements. However, the DeFi (decentralized finance) market addressed the gnawing disparity in financial market democratization with smart-contract-based financial instruments. Now, one can lend, borrow, invest and trade in an algorithm-based open market that runs without intermediaries.

The DeFi market has reduced accessibility barriers for various financial tools and has experienced exponential growth over the past year. What? You didn’t know? Well, maybe it’s time.

2020: The Growth of the DeFi Market

The DeFi trend essentially began with Ethereum-based protocols — Synthetix and MakerDAO. What these decentralized derivatives and lending projects started has now transformed into an ecosystem with close to a $50-billion valuation.

Yes! That’s correct, and the above graph is a testimony of the same.

However, it wasn’t all that flowery in the beginning. The phase from 2017 to Q1 2020 was pretty slow in growth. The DeFi market took off in earnest only from June last year and has not looked back. You would wonder what spurred this massive growth of a seemingly nascent space.

Well, COVID-19 happened, and along with it occurred a 2008-like financial catastrophe (more enormous in proportion, to be precise) that took down traditional markets, businesses, and economies of entire nations.

At a time when people saw the value of their earnings and savings in bank accounts depreciate incessantly, the burgeoning DeFi space provided limitless opportunities to leverage a variety of open-source programmable financial protocols to make a lot of money. The video below will explain how.

Whether leveraging DeFi/decentralized exchanges (DEXs) to stake tokens in various yield farming or liquidity mining contracts, flash loans or lending crypto to earn interest, DeFi is an instant global portal for investors to erase the losses incurred from participating in traditional markets. 

Still wondering why? The entry barrier is way too low, and one doesn’t need to have a tonne of cash to get started. Thanks to the meticulously programmed smart contracts in protocols like Compound Finance, Balancer, Aave, etc., all transactions happen in real-time without third-party interference.

By now, you must have started getting second thoughts about staying invested in traditional markets. If not, here’s something that will force you to consider your options.

DeFi Market Outlook for 2021

Even with bitcoin price surpassing its previous all-time high, 2020 was arguably the year of DeFi. Massive adoption of decentralized apps (dApps) for accessing various cryptocurrency-based financial markets points out that the future potential for DeFi is extremely promising, and this is just the beginning.

2021 is shaping up to be the year in which the decentralized finance trend will snowball into something much more significant and transform the world of finance as we know it today.

Scaling Solutions and Network Bridges Will Fine Tune DeFi for Mass Adoption

Currently, the network is undergoing an upgrade phase to Ethereum 2.0. Upon the complete shift from Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake, Ethereum’s throughput and security will shoot up, and massive, full-fledged adoption will happen in no time.

Until then, Layer 2 solutions will help transfer the dApp load from the main Ethereum chain to numerous auxiliary chains that are fast and inexpensive to operate. This will happen via rollups.

Rollups are a kind of Layer 2 solution that allows bundling of transactions off-chain. These bundled transactions can then be submitted to the leading Ethereum network in batches, enabling it to scale 200 times more transactions than before, essentially benefiting DeFi market participants.

Apart from Rollups, it will also be possible to scale Ethereum through multiple and technically sustainable blockchain bridges. Through bridges, DeFi users would have the option of accessing liquidity across multiple blockchain networks along with their functionalities.

The NFT Boom Is Here to Stay

The idea surrounding tokenization of unique artworks, video moments, or photographs, or for that matter, any real-world item, has quickly found its way into mainstream media, creative, and sports circles.

NFTs will only keep gaining more popularity as they facilitate the proof of authenticity and ownership of digital art, in-game items, and other digital collectibles. NFT marketplaces will flourish left, right and center as they enable people to buy and sell all kinds of unique digital tokens using ETH (Ethereum’s native cryptocurrency), BNBand stablecoins.

The NFT market has already shot past $500 million, and the day isn’t far when the figure will touch $1 billion. Just so you know, the DeFi market has already crossed paths with NFTs with NFTfi and Rocket, NFTs can now be used as collateral for peer-to-peer loans. This will enable NFT holders to treat their digital collectibles like any other monetized asset. Indeed this isn’t possible in the world of traditional finance.

It is said that ignorance is bliss, but after reading all of the above, blissful ignorance of the opportunity that the DeFi market is offering will surely not help you win as an investor since it is just not some other market. DeFi has set in motion the fundamental restructuring process of finance itself. It is not a good idea to ignore a good revolution. Even if the risk is high, the rewards are much higher.

There are some great tools and platforms that you can leverage to get involved. One such tool is a DeFi wallet. Options are myriad. However, only a few can allow you to explore the entire world of DeFi. Eidoo is a DeFi wallet that doubles up as an excellent crypto asset management platform.

Also, pNetwork’s native token $PNT is well-integrated within the Eidoo ecosystem. It can be said the token is at the core of the Eidoo-pNetwork integration. $PNT provides access to various services, such as the eidooCARD, its cashback program, and the Atomic Swap feature.

As for Eidoo wallet, it boasts of numerous features such as:

  1. EidooID
  2. Instant SEPA on and off-ramp for fiat
  3. Access to a Decentralized Exchange
  4. Over 1000 supported tokens
  5. Access to the Visa-backed debit card — eidooCARD
  6. Yield farming opportunities
  7. An in-built NFT manager

Only a few past events have brought radical and irreversible changes in our lives. The birth of the Internet, cellphone, fintech, e-commerce, social media were some of them. People who got involved early (per the curve below) have found themselves on a green, pasture-laden side of their life.

The inception of the DeFi market is one such watershed event that demands mass participation for the sake of freeing up finance itself for those who are left out by so-called systems built by centralized institutions. If you are looking to be a part of an actual financial inclusion movement indeed, DeFi is your best bet.

Are you ready to participate?

The Benefits and Risks of Smart Contracts

Smart contracts are automated contracts with self-executing business rules and financial agreements written into the code and stored on a decentralized blockchain network. 

Note here that they are not legally binding like traditional legal instruments, but are simply business decisions expressed in a form understandable by software and executed by the “Rules of Law”. That means that it is agreed upon by both parties that once the conditions are met, the contract is executed no matter what.

The mere fact that they are controlled by the code adds to their groundbreaking essence as that also makes them trackable, irreversible, and non-tamperable. 

Nevertheless, as with any innovation, there is the other side of the coin. With smart contracts, that is the issue of trust. 

Even though blockchain technology provides by nature a trustworthy and trustless alternative to the already existing models of business and interpersonal conduct, a code-controlled contract still remains as secure as the code written into and as bulletproof as the skillset of the person who wrote it. 

Even though blockchain technology provides by nature a trustworthy and trustless alternative to the already existing models of business and interpersonal conduct, a code-controlled contract still remains as secure as the code written into and as bulletproof as the skillset of the person who wrote it. 

How Are Smart Contracts Used?

The financial and banking sector was the first to recognize the massive potential of smart contracts using blockchain, but other industries are jumping on the bandwagon as well. 

Banks from all over the world have long since started to utilize smart contractual relationships, focusing mostly on large-volume cross-border transactions and trading credit default swaps. 

Additionally, companies in healthcare, real estate, tax, and insurance, supply chain industries are rapidly switching to these contracts for executing everyday business tasks. 

This, of course, in part relies on securing participant identity in the blockchain via tools like AIKON’s ORE Protocol in order to ensure contract signees’ access control, identity, and payment. 

Smart Contracts’ Benefits

Many argue that the pros by far outweigh the cons, but for smart contract mass adoption to become a thing of reality, those who are meant to use them first must understand both the benefits and associated risks. 

Accuracy

Since this type of contract is based on “if/then” relationships written into the code, when all conditions are met, contracts are executed. Therefore, they allow for infinitely more precision in their execution than what is allowed by traditional judicial frameworks, while at the same time they leave no room for subjective interpretation by human participants. 

Speed

As a paperless business tool, smart contracts are very quickly processed. Moreover, their automated and digital nature allows for incredibly fast data input and modification. When time is equalized with money, this is a significant advantage to have over the competition, for instance. 

Cost-effectiveness

Having in mind that utilizing these contracts eliminates all need to employ intermediaries that would vouch for the unviolated nature of information, using agreements of this type is less costly for companies than traditional ones. In this sense, trust is built into the mechanism of recording and executing the terms of the agreement – blockchain. 

Trust

Encoded into the blockchain platform, and based on the same principles, smart contract technology inherently invokes the rule of trust. Encrypted fragmented records of legal relationships and financial transactions are shared between all blockchain participants, thus ensuring their intended undamaged condition free of malicious modification. 

Security

Again, the fact that all information related to this type of contract – or anything stored in blockchain really – is broken down into encrypted sections distributed across the network is precisely what makes it safe from tampering. To change a piece of information within a smart contract, the entire chain would need to be altered and that is only done through a validation consensus. 

Smart Contracts’ Risks

As said before, with such a young technology – after all, smart contracts were first introduced in the mid-nineties – there are still pending issues that hinder its mass adoption. 

Reliance on the Code

Many people still vary from utilizing contracts built on blockchain to conduct their business precisely because they believe no code is perfect simply because it has to be created by a human. In that sense, it’s reasonable to think that there will always be flaws others can use to gain unauthorized access to the system and perform malicious actions. 

Regulation

Since smart contracts and blockchain technology are still maturing, we are yet to see how the legal systems across the world will handle these business agreements in terms of taxation and other forms of regulation. 

Nevertheless, these issues are expected to be addressed and resolved as the technology matures and is perfected over time. 

In any case, these contracts are formulated in such a way that they truly represent the future of humankind, especially when having in mind the technology-based society we live in.

This article originally appeared on aikon.com