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What DeFi offers for crypto speculation beyond lending

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DeFi proponents claim that its nascent industry will continue to grow and ultimately deliver on its promises.

“By removing the reliance on intermediaries, DeFi makes traditional banking services far more accessible.”

Leading DeFi protocols are now looking for real assets.

DeFi “has crossed the threshold of speculation and investment.”

Decentralized Finance (DeFi), which is not so decentralized after all, is going through a soul-searching phase right now. Since Terra collapsed in May and brought with it a slew of platforms, the prevailing sentiment was that DeFi had little to offer other than circular lending and ruthlessly leveraged speculation that can set off a chain reaction of failures when a domino falls.

Given that Terra’s failures have led to other failures, there is certainly some truth to this suspicion. However, figures working in the crypto and DeFi sectors confirm that DeFi remains a young space and that it will mature and solidify as it develops.

In fact, many argue that there will be increasing integration between DeFi and legacy finance in the coming years, while also finding applications in areas outside of finance such as the Internet of Things, digital ID, and data storage. And the more it does this, the less it will revolve around the unstable practice of lending and borrowing almost exclusively for speculative purposes.

The potential of DeFi beyond speculation

Criticism of DeFi has not been lacking since May, when Terra’s de-pegging and collapse unfolded across the space.

Responding to several platforms stepping in to prop up the sector, software engineer-turned-crypto-skeptic Stephen Diehl noted in late June that “most of the decentralization rhetoric in crypto is ambitious at best and empty marketing at worst “. In the meantime, MetaMask Co-founder Dan Finlay told Vice in July that “a lot of the collapses that happened during this last round were things that branded themselves as DeFi but then actually acted as shadow banks with massive leverage.”

One commenter even suggested that “DeFi is dying” in response to the summer’s collapses, while two other prominent crypto skeptics, David Gerard and Amy Castor, collaborated on a “dead and dying list” for Defi in late June. In the meantime, FTX Founder Sam Bankman-Fried compared DeFi yield farming to Ponzi schemes.

At the heart of all of these criticisms is that too much of DeFi comes with highly leveraged speculation: platforms would take deposits from users after promising high returns, and then use those deposits to lend to other platforms or themselves to make investments. Of course, since the crypto market is so notoriously fickle and volatile, speculating with other people’s money is rarely a good idea.

However, there are still many defenders of DeFi in the crypto space, all of whom continue to affirm that the space will continue to grow and ultimately deliver on its promises. These include Jason Ma, Director of Business Development at Web3 Infrastructure Network Shoulderstelling Cryptonews.com that DeFi is a natural evolution of the current financial system.

“DeFi eliminates intermediaries and central oversight, making financial markets more accessible to retail investors and creating new investment opportunities. Decentralization democratizes banking and finance by ensuring easy access to financial services for all, especially in developing countries,” he said.

In terms of its potential, Ma argues that DeFi inherits numerous strengths from leveraging blockchain technology, such as: B. Transparency, which can improve due diligence and help people identify and avoid potential financial fraud and harmful business practices. Likewise, immutability via smart contracts provides additional protection against bad actors and fraudulent transactions.

Other numbers are unanimous when it comes to acknowledging the future potential of DeFi, even if it is yet to be realized.

“DeFi is possibly one of the most compelling use cases for cryptocurrencies as it allows any business logic to be executed on-chain in a transparent and trusted manner,” said Till Wendler, co-founder of the Economy-of-Things blockchain technology provider sea.

This type of testimonial is not hard to come by as commentators within crypto are making some bold claims on behalf of DeFi and where it will end up in the longer term. To the

Pedro Isaac Lopez, Chief Growth Officer at THOR Wallet DEXDeFi is a “critical component” in building a more inclusive global financial system.

“By removing the reliance on intermediaries, DeFi makes traditional banking services far more accessible and opens up the range of innovative tools made possible by blockchain technology. These services and tools include swapping, borrowing or lending, generating income from crypto assets through pooling and yield farming,” he told Cryptonews.com.

Lopez points out that even after the recent downturn and subsequent collapses, the total value of the ecosystem’s DeFi platforms is around $70 billion per year deflame. To him, this is a sign of DeFi’s resilience and an indication that it will ultimately be used to allocate and manage capital more efficiently, adapting to changing market conditions in ways that were previously impossible.

The present and future of DeFi

Skeptics will likely argue that such an ambition has not yet been realized and may never be achieved. However, there are numerous examples of DeFi platforms achieving things in the present rather than just pointing to a utopian future.

“For example the MakerDAO The community recently passed a proposal to integrate a US bank into its collateral system,” Jason Ma said, referring to the US-based company Huntingdon Valley Bankwhich now has a $100M debt ceiling on MakerDAO after the Maker community voted to include it in its ecosystem.

“It will be able to borrow the sum in DAI by posting collateral to an off-chain account. Five more real-world assets have been integrated into MakerDAO, and more proposals are being discussed in the governance board,” Ma added.

Maker also recently voted to invest $500 million in DAI in US Treasury bills and corporate bonds, meaning DeFi has started to play a role in allocating capital to the global economy. If you accept that banks, treasury bills, and bonds are useful to the global economy, you may now have to accept that DeFi is useful.

Till Wendler also agrees that more leading DeFi protocols are now seeking exposure to real-world assets, citing cases of business-to-business lenders using DeFi to invest in companies offering real-world services, such as: fairmint.

“We’ve seen some momentum in crypto mortgages. The industry is slowly but surely moving toward real-world results, and that’s where it should be going if it wants to have healthy revenues and services,” he said.

According to Naureen Mustafa, Head of Exchange Development at listDeFi has started to transform real estate, insurance, crowdfunding and other sectors.

“For example, DeFi eliminates the paperwork and all intermediaries in the real estate industry. You can now buy real estate tokens or even entire property by signing a transaction through your digital wallet, and you can become an owner of an asset without involving banks, brokers, or government agencies, etc.,” she told Cryptonews.com.

A recent example of DeFi and real estate merging is the partnership between them announced in June Teller Protocol and Tower fund capitalwhere depositors at Teller receive interest payments on the financing of mortgages and loans made by Tower Fund Capital.

Sure, such partnerships represent first steps, but they show that DeFi is expanding and is not destined to be little more than a leverage mechanism for crypto speculation.

“While speculative lending and borrowing requests have been the fastest to be accepted, the entire DeFi sector is still in its infancy, and I strongly believe it will expand into corporate finance, real estate, content production and distribution, and more,” said he Mattias Tengblad, CEO and co-founder of a blockchain-based crowdfunding platform corit.

Many others agree that it is very early days for DeFi and that recent crises, including Terra and Celsius will only ripen it. As Naureen Mustafa concludes, there is innovation at every level of the sector, from basic blockchain protocols to decentralized apps and front-end user experiences.

She said: “It has crossed the threshold of speculation and investment. Serious use cases are being developed, and DeFi services are more transparent, powerful and technologically advanced than a centralized financial system.”

Learn more:
– How to recognize the next degree Celsius before it’s too late
– $6.8 billion pension fund to invest in crypto lending market

– Nomad DeFi Bridge Drained Of At Least $150M In ‘Chaotic’ ‘Decentralized Heist’
– DeFi didn’t break – Dan Morehead & Joey Krug

– 7 DeFi risks you should know about according to CoinShares
– DeFi is “designed to avoid this bullshit,” Compound founder says of crypto bailouts

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