One of the most important phenomena in the world of crypto-currency in 2020 was Decentralized Finance or DeFi. These were the main aspects of the new technology practically throughout the year and their growth can be considered unexpected.
Although the DeFi were born a few years ago (December 2017), their true potential was shown in 2020. The growth of the blocked value (LTV) injected into these applications this year has been such that since July 2, when it did not reach $2 billion, on September 11 it was already close to $11 billion.
Currently, at the end of 2020, the LTV of DeFi reaches $13.4 billion. For many analysts, Bitcoin's recovery took the spotlight off 2020 for decentralized finance, and now it will go into decline. For others, the system is just beginning and the DeFi will become an alternative to the financial system.
Will the DeFi in 2021 have the same momentum as in 2020?
Taking 2020 as a reference to predict the behavior of the DeFi in 2021 is not entirely accurate. It is a complicated analysis in which the experts in the area of Blockchain and Finance themselves hold radically different opinions. All this suggests that the DeFi are a riddle that remains under a cloak of mystery.
Despite all the differences in approach of the experts, one thing that is a consensus, is that this new modality is just in its infancy. That means that its success depends on usability, and this, in turn, depends on the number of people who have knowledge of the system.
The rise of Bitcoin, in the last stage of the year 2020, erased the interest of the users in the DeFi, who are now satisfied with trading in a more traditional way with Bitcoin in the already known centralized exchanges.
This last situation has led to a relative stagnation of decentralized finance. On the other hand, it has led many to equate the 2020 DeFi with the 2017 ICO boom.
Transformation of financial services
For a number of experts, interviewed by the CoinTelegraph portal, the DeFi in 2020 reached the first quarter of their target. In the medium term, explains Brian Brooks, U.S. Treasury regulator, the DeFi will be one of the great forces redefining financial services.
"With the fulfillment of the three main functions of banking, lending, payments and deposit taking, decentralized finance has great potential. It will transform the way we consume financial services," he explains.
The aspect of innovation and evolution of the crypto universe, is one of the essential parts that DeFi contributed. This is the opinion of Dan Simerman from the IOTA project.
"I agree that 2020 was the year of the DeFi. Mainly because these projects dominated in terms of innovation and development. They showed the world of crypto-currencies that innovation is still possible," he said.
On the other hand, he dismisses the comparison of 2020 in the sector, with the 2017 ICO fever. He considers that, after the "ICO madness", it seemed difficult for another innovation project to establish itself in the market. However, the high level of development and opportunities created by the DeFi, made it possible for them to become "a phenomenon that is just beginning".
The risks within decentralized finance
Another aspect to take into account for 2021, and which was present at all times in 2020 among the DeFi, was security. The risk of placing capital in many of these projects that are not secure, is one of the great concerns expressed by Emin Gun Sirer, CEO of AvaLabs.
Another problem expressed by the experts consulted was scalability within the network. The high commissions have been a headache for the ecosystem. Thus, during the year, they reached their historical record on several occasions.
Whatever the opinion of the DeFi, what cannot be denied is that they already have their place. If they are ignored by practically all the users of crypto-currencies, they now have a growing interest among important investors in the sector.
Although it is unlikely that the 2020 boom will be repeated in 2021, it is likely that the stages of stagnation and upturn will alternate.
