DeFi – More Than Just AMMs
For many, DeFi is simply about yield farming. However, AMMs and the yield farming opportunities they provide are simply one expression of DeFi. As with every new trend, DeFi got flooded with opportunists back in 2020 and 2021. DeFi protocols were popping up every day, and many were outright scams that simply got rugged. Much of this has left a rather bitter taste in the mouths of investors.
Furthermore, there is also the reality of significant depreciation. Yes, DeFi tokens are often the hardest hit during a Crypto Winter. This is why DeFi-based tokens need to have additional utility. If there is no motivation to hold onto rewarded tokens, it makes the most sense to simply offload them. This dynamic, is to a large extent, behind the heavy losses that get racked up during a bear market.
There are multiple expressions of DeFi, and yet much of the attention tends to fall on yield farming. Collateralized loans, the safety of DEXs, and other financial products, including synthetic assets, all play a role in the DeFi space. We are yet to see these products reach their full potential, as well as true adoption and recognition. I believe that this will begin to unfold going into and during the next bull market. DeFi is yet to make a “comeback” with renewed interest and focus.
In many ways, DeFi is yet to be understood and fully appreciated. Ultimately, this signifies a tremendous need and opportunity for maturation, development, and growth. In many ways, it’s similar to Bitcoin back in the day… everyone latched onto a single concept or idea regarding Crypto. However, look at the maturation and development that has unfolded over the years. In a similar way, DeFi will experience expansion, in terms of expression and use cases.
Regulatory Attack?
It’s rumored that the SEC is beginning to look at DEXs as their next target. However, once again, the damage the SEC can do is rather limited. On two separate occasions, we have seen DEX volumes spike. Firstly, when FTX and other similar companies began to go under in 2022, and then more recently, in response to the SEC attack on Binance and Coinbase. The most recent event saw volumes on DEXs increase by more than 400%.
Last week Coinbase actually went as far as to tell the SEC that DEXs cannot be regulated as exchanges. Once again, this is going to be an interesting dilemma to watch unfold. Chief Legal Officer of Coinbase Paul Grewel had the following to say regarding an outright ban on the industry.
Truly decentralized systems do in fact exist and have no single organization capable of being responsible for compliance,” he wrote. “The proposed rule, as applied to DEXs, would be just such an impossible requirement.
The Commission has failed to engage in a real economic analysis and instead used the patina of an economic analysis to justify its policy preferences.
In actual fact, it’s ludicrous to even consider banning the single most effective and important technological breakthrough of the 21st century. This is definitely going to be an interesting “battle” to observe play out.
Final Thoughts
The opportunities of expression, in regard to decentralized finance are enormous and are very closely tied to WEB3. Consider for a moment… that DeFi protocols are in essence WEB3-based. In actual fact, there is no real distinction. Realistically speaking, DeFi is an expression of WEB3. In many ways, this unites WEB3 and DeFi, in regard to their journey and adoption.
The two are like husband and wife… two and yet one. WEB3 can’t really advance without DeFi and vice versa. Their roles might be somewhat unique. However, there is a common ground that unifies them in purpose and utility. Any financial transaction that takes place on a WEB3-based protocol has to be a “DeFi” transaction, otherwise, it would cease to be truly WEB3. You can see where I am going with this.
The next two years are going to be critical, for both DeFi and WEB3. This is something that I will be monitoring rather closely, especially post the 2024 BTC halving. Anyway, that’s it for this one. Catch you next time! All the best!
Disclaimer
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This article was first published on Sapphire Crypto.