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Is it worth talking about? Weighing DeFi products against the madness of token prices

August 13, 2020

It’s no secret that 2020 was the year of decentralized funding in the crypto world. In this regard Several DeFi tokens have recently increased in value, leading many experts to believe that the future is bright for this specialized sector. DeFi global markets continue to climb to record highs in terms of total locked-up value, hitting a high of $ 4.75 billion on Aug. 11.

As a result of these events, key technology industry players are trying to help financial institutions capitalize on the current DeFi hype. For example, Nitin Gaur, IBM’s director of financial services and digital assets, previously told Cointelegraph It is of the utmost importance that traditional banks begin to recognize and accept the value propositions of DeFi technology, otherwise their existing business models could soon be outdated.

The rise in DeFi’s popularity in traditional markets

According to Jack Tao, CEO of Crypto Exchange Phemex, a number of factors have contributed to the recent mainstream attention that the DeFi space has drawn. He told Cointelegraph that every day A growing number of DeFi tokens are supported by prominent exchanges around the world. Not only that, This emerging technology has also been able to spark the imagination of the masses as it can deliver new decentralized applications, implementations and projects in real and tangible ways.

Is it worth talking about? Weighing DeFi products against the madness of token pricesIs it worth talking about? Weighing DeFi products against the madness of token prices

Tao also pointed this out A large chunk of investors around the world have also helped introduce DeFi to the traditional markets as they tried to take advantage of continuous advertising but mostly to maximize their profits in the shortest possible time.

Similarly, believes Charles Read, an angel investor who was previously involved in developing projects such as DIA Data and the Orion Protocol Three key factors have influenced the DeFi narrative over the past few months: Income Farming (Income Farming in Spanish), Liquidity Depression (Liquidity Depression in Spanish), and Synthetic Assets (Synthetic Assets in Spanish). In his opinion, combining one or more of the above can allow developers to create new systems that are not only new but also have general deployment potential:

“Now there are aggregator exchanges like ParaSwap and 1inch that provide access to liquidity across all DEX markets [intercambio descentralizado] through your wallet. This means that people in the crypto ecosystem are using DEXs more than ever. “

Also read that due to the increase in DEX volume, the crypto market will continue to see the struggle of several centralized exchanges to maintain their current trading volume. As a result, a growing number of traditional exchanges will continue to support other DeFi projects, leading to older projects being switched to decentralized funding. He added: “It’s more of a marketing game than a product game“.

Trading volume on decentralized exchanges

Sandeep Nailwal, operations manager and co-founder of a Matic blockchain scalability platform, shares a somewhat similar point of view. Who believes projects like Compound have set a successful precedent for the governance token model that is now being replicated by all DeFi projects? He added:

“The use of yield farming, an incentive for protocol token users to participate, is growing in popularity. Currently, most of these tokens are based on a central utility, the governance protocol. It remains to be seen whether the high ratings these tokens are given currently dominate the market, really worth it. “

Did DeFi platforms deserve their financial advancement?

One relevant question worth exploring in the context of this DeFi boom is: Are popular tokens really supported by platforms that offer products that deserve increased demand for coins? Kosala Hemachandra, founder of MyEtherWallet, contributed his knowledge on the subject and told Cointelegraph that this was the case:

“Unlike the 2017 ICO craze, the surge in DeFi demand is actually being backed by users, along with tools and services that can fuel growth and help us take decentralized funding to the next level. For the first time ever, we can we now act, borrow and lend without the involvement of a single central entity. “

Additionally, it should be noted that some projects such as Synethix, Thorchain, and Kyber Network, even before the recent DeFi madness erupted, had silent appreciation in value throughout 2020, showing a natural upward trend supported by trading volume. In that regard, Read agreed The real value of many tokens can be heavily distorted due to the high volatility. Also, believes that oracle platforms deserve every part of their meteoric rise, as accurate pricing is essential when it comes to offering secure DeFi instruments as loans to the masses::

“If you don’t have an accurate price feed or if you don’t get prices from multiple sources, sell-offs can easily occur. […] This means less risk and more precision when using financial instruments … and it is very helpful to allow the community to vote on the quality of the data with a government token. “

However, Nailwal is skeptical of the claims made and believes that from today’s perspective Markets and revenues are too small to warrant increased valuations, suggesting that the current boom could be in large part due to incessant market speculation and FOMO.

Is the current DeFi token distribution scenario worrying?

According to a new analytical study by Simone Conti, co-founder of DeFi Italia and vice-president of Eidoo, lThe global token offer (99%) for most DeFi projects is in the hands of the 500 best addresses that are active in this area. Additionally, it is clear that the top five directions for the vast majority of DeFi projects account for more than 40% of the total supply, with Bancor being the only anomaly.

DeFi token distribution among holders

The problem with focusing on DeFi technology is that government tokens are designed to give them voting rights. Basically, when the major owners have large amounts of tokens, they have an overwhelming majority of the voting rights. When it comes to platforms like Compound, Users receive tokens for a certain period of time as payment for using the platform. Since the platform is just getting started, most of the initial offering is in the hands of venture investors. Hence, it may take some time for these projects to reach a certain balance.

Grant Fondo, co-chair of Goodwin Procter, a law firm specializing in digital currency and blockchain technology, told Cointelegrap that the US SEC, along with other financial regulators You tend to worry when some entities are controlling a particular platform or network::

“Otherwise, the project’s claims do not affect the independent assessment of regulators. These concerns are compounded if either of these owners is responsible for significant price volatility or direction of the project, or for related fraud. Networks”.

Finally, Tao took the view that the above problem was one of the most common problems with most cryptocurrencies and further emphasized that other questions should be asked rather than just concerned with the problem:Who has the most of these tokens? Do they have the ability to manipulate prices easily? Would a more even distribution of DeFi tokens be more beneficial for the entire project?“.

Isn’t that DeFi boom the same as the 2017 ICO bubble?

While it’s easy to compare the current DeFi boom to the 2017 ICO craze, people like Ryan Watkins, Principal Investigator at Messari, They found that such comparisons are unfair and do not do DeFi technology justice. He found that a number of ICOs managed to attract billions in investments in 2017 without offering a product that worked. As for DeFi, Most projects already have live products.

Related: Yield Farming increases the noise about DeFi, but the basics are lagging behind

Additionally, Watkins firmly believes that despite the current boom, the DeFi room will remain relatively small and still offer significant room for expansion. Not only that, He also argued that the growth of this space will most likely continue thanks to a redistribution of capital from various “useless first-generation cryptocurrencies and dead projects”.

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