The total amount of assets locked in various Decentralized Finance solutions (DeFi) has sky-rocketed to a whopping $22.46 billion according to data provided by DeFi pulse that watches the industry closely.
The traditional financial system has too many intermediaries, lack of liquidity, absence of transparency, and is influenced heavily by several external factors. A DeFi development solution is antifragile, distributes more power to users, and transferring funds is quicker and cheaper.
What Is DeFi Development?
DeFi development involves the creation of financial applications on existing blockchain networks. It maintains a high level of transparency and ensures fast processing of transactions without the presence of any intermediaries in the system. It offers various services like loans, yield farming, crypto staking, asset management, insurance, margin trading, and decentralized exchange of assets. The lack of adequate access and the absence of blockchain awareness are roadblocks to the growth of decentralized finance platforms.
The Latest Trends Witnessed in DeFi Development Services
Digital wallets - A large number of digital wallets have emerged offering a safe storage avenue for users to store, hold, exchange, and lend their crypto tokens and coins. It helps in the smooth transfer of funds and the fast processing of transactions. The wallets are also compatible with various blockchain networks and different DApps offering a seamless user experience. Private keys are utilized by users to have access to their funds.
DeFi token development - The demand for DeFi tokens has increased from investors now. The price of tokens has risen more than the leading cryptocurrencies. Voting rights are granted to the users to take part in the decision-making and management of the DeFi platform. DeFi tokens are highly capital efficient and also offer more returns through leverage trading where users can take either short or long positions depending on the prevailing market situation. The top tokens based on the market cap in the industry are Chainlink, Wrapped Bitcoin, Aave, Synthetix, Uniswap, Maker, and DAI.
Creation of Non-Fungible Tokens (NFT’s) - Non-fungible tokens (NFT’s) is the next big thing for decentralized finance development. It has witnessed a rise in the number of transactions and trading volume recently. It presents a wide number of use-cases. Artworks, sports goods, digital cards, and games are some of the exciting rewards offered by Non-fungible tokens. The leading NFT’s by market cap are Rarible, CryptoPunks, Sorare, and Decentraland.
Yield Farming Development - Yield farming was the biggest craze in DeFi development. Crypto holders will lock their assets for a specific period in decentralized blockchain networks. They will get benefits if the price of their tokens increases over time. The returns will be determined based on the Annual Percentage Yield (APY) or Annual Percentage Rate (APR). The top Yield farming platforms currently are Curve, Sushi, Venus, Harvest, and SUN.
Stablecoin development - The frequent price fluctuation in Cryptocurrencies affected the returns for some investors. Stablecoin offers certainty without any changes in value. Its market cap is now more than $29 billion. Tether (USDT), USDC, and DAI are highly-demanded Stablecoins in the market.
Decentralized lending - A viable alternative to a traditional bank has arrived in the form of Decentralized lending. It uses blockchain technology and smart contracts to ensure a high level of transparency for the lenders and borrowers while disbursing flash loans. It is free from the control of central authorities. The benefits include higher interest rates for lenders, cheap credit for borrowers, collateral protection is provided in case of default in loan repayment by the borrower, and fast processing of transactions at low rates. The leading Decentralized lending platforms in the market are Aave, Maker, Compound, InstaDApp, and Dharma Protocol. The future of DeFi lending will lie in decentralized identity management and credit scoring apps. The risks pertaining to the security in the smart contracts, governance-related issues, and collateral auditability will also have to be dealt with immediately.
Decentralized Exchanges - With centralized platforms suffering a credibility crisis due to repeated hacking attacks, Decentralized exchanges or DEX is a blessing in disguise as it is free from intermediaries. It uses a secure peer to peer system to enable direct trading of digital assets by users. The popular Decentralized exchanges widely used by traders are Uniswap, Sushiswap, Curve Finance, TokenIon, and Compound.
Decentralized Insurance - Insurance acts as a safety net against any unexpected emergencies or contingencies for the users. It reduces the risks significantly. Decentralized Insurance is now offered to protect crypto traders against bugs in the smart contract, to back up their funds stored in DeFi wallets, and against vulnerabilities in liquidity pools for staking and lending. A risk-sharing pool is established on the platform and members will manage this pool of assets effectively. The Insurance market will become more competitive in 2021 and quality services will be provided to the users at lower costs. Some of the popular Decentralized Insurance platforms are Nexus Mutual, Etherisc, Cover Protocol, and Opyn.
Synthetic assets development - Synthetic assets are a combination of various financial instruments like options, swaps, forwards, and futures contracts. They provide high returns for investors with low risks and price volatility is countered by trading in derivatives. Synthetix and UMA Protocol. They have witnessed a huge rise in trading volume and price of their tokens recently.
Decentralized finance (DeFi ) solutions will continue to soar to new heights this year. It will grow even stronger and the market will become more mature offering a better user experience. Regulations by authorities are also expected to intensify in the days to come. Decentralized finance platforms are here to stay in the long run. It has a strong future ahead and can withstand any amount of headwinds. The main focus will be on boosting mainstream adoption with the traditional financial world.
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