Defi - decentralized finance and altcoins in spiral. Logos of the main coins of the Defi sector on a blue background. Vector EPS10.

Using Jack Dorsey’s recent announcement that Square will develop a new finance platform for creating decentralized finance with Bitcoin, the world of DeFi should finally start speeding up and consuming the banks and the traditional financial sector. 

As the Total Value Locked (TVL), mainly on the Ethereum platform, began to reach astonishing dimensions, Decentralised Finance (DeFi) made the financial industry sit up and take notice. DApps like Maker, Compound, Aave, Synthetics, Uniswap, and others provided various financial services, including lending, borrowing, futures, exchanges, and algorithmic trading.

The traditional financial world’s intermediators and gatekeepers have vanished. The decentralized nature of these DApps built on Ethereum allows users to trade without going through the identity checks and other formalities that traditional banking companies require. 

To paraphrase Lex Sokolin, Consensys’ co-head of decentralized protocols: 

“The advantages that DeFi has are multifold. Number one: it is in theory up 100 per cent of the time, right? So, because Ethereum is always up, so is DeFi. And then there is composability, the ability to layer.” 

The term “layering” refers to the process of different programming programs to work in sequential order, one after the other. For instance, according to a recent Wired article:

“One can easily design a program that would automatically borrow cryptocurrency from a lending platform, dump it on a decentralised exchange in the hope of making its price plummet, buy it back and return it, possibly pocketing a short margin – in a matter of seconds. Investing strategies become puzzles, jigsaws of software commands to compose on the fly.” 

By the year 2020, a new evolution from DeFi had emerged in the form of yield farming. This was a method of collecting interest, fees, and other perks by depositing tokens on decentralized lending markets. 

Jamie Burke, the CEO of Outlier Ventures, believes that, despite some DeFi protocols’ fragility, DeFi will finally triumph. He declares: 

“I think of DeFi as a sandbox: I’ve got a concept. I can test, validate that concept. I can understand the economics of it in this permissionless sandbox that is DeFi. Once I have done that, I can then raise money, I can hire the lawyers. Ultimately, if you want mainstream users, the reality is that the average person wants the insurance policy of a regulated product.” 

The question is whether Ethereum will remain the undisputed blockchain for DeFi initiatives or if others will supplant it. The switch from proof-of-work to proof-of-stake, as well as a major upgrade in the shape of Ethereum 2.0, will solidify that dominance.

The increase in transaction speed from 15 to 10,000 per second should undoubtedly assist.


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