Decentralised finance (DeFi) is an ecosystem of smart contracts that allows participants to offer and access financial services in a peer-to-peer format, without relying on traditional intermediaries like banks, credit unions, or brokerages.
The MakerDAO is a decentralised lending protocol and one of the most popular DeFi dapps (decentralised applications). The protocol allows users to use ETH as collateral to borrow DAI, a digital token pegged to the dollar. The dapp allows investors to go long on ETH: users can spend the DAI borrowed to buy even more ETH, which can then be cycled back into the vault to borrow more DAI. This creates decentralised leverage — investors can bet on the price of ETH for only a small initial sum.
A variety of dapps are being built to facilitate trading, banking, and investing solely through smart contracts. Compound, for example, allows users to earn interest or borrow crypto against collateral. Through Uniswap, users can swap tokens or provide liquidity and earn fees. With Augur, users can bet on real world events and earn payouts automatically based on the results.
The DeFi space has been growing rapidly: the total value locked in DeFi increased by 10x since the start of 2020, to over US$7bn. Check out defipulse.
Lending dapps dominate the space with huge numbers locked in. Aave ($1.5bn), Maker ($1.42bn) and compound ($782.9m)
The remaining Ether is split between minor DeFi applications including decentralised exchanges and financial derivatives.
DeFi Market Cap, estimating tokens associated with the DeFi phenomenon now have a combined market value of $12.7 billion.
Can’t choose which one? Binance plans to offer “DeFi Index Perpetual Contracts,” listed on Binance Futures. The contracts will be denominated in the dollar-linked stablecoin tether, and offer traders leverage up to 50 times their money down.
The “fully synthetic derivative product enables greater access to decentralised finance,” Binance said in the release. Binance’s DeFi index consists of 10 tokens associated with DeFi, several of which rank among the year’s best performers. They include Chainlink’s LINK, Compound’s COMP, Kyber’s KNC, Aave’s LEND, ZRX’s 0x and MakerDAO’s MKR.
Meanwhile “old school DLT/Blockchain applications could be numerous:
- Tokenised Real Estate: illiquid assets and siloed networks.
- Digital assets: Represent any asset or agreement.
- Supply chain: Inefficiencies in global value chains.
- Digital Identity: Massive vulnerabilities.
- Decentralised advertising: Trust and transparency.
- Insurance: Archaic end-to-end processes.
- Healthcare: Tracking IP, drug provenance, parent admin.
- Trade Finance: Opaque and fragmented industry.
Outlier Ventures has a significant portfolio of companies pushing DLT/Blockchain to create the “next era of digital infrastructure”.
A good example is Sovrin, an open-source project creating a global public utility for self-sovereign identity.
The use case is compelling as they discuss here. “As hacks and breaches become commonplace, affecting millions of people around the world, self-sovereign identity (SSI) is quickly gaining traction among technology developers looking to gain an edge in the race toward web 3.0. This new type of decentralised identity brings control and security back into the hands of the individual. Unlike flawed centralised models, including some federated and siloed traditional data systems, which could become honeypots and security risks, SSI allows identity holders to communicate peer-to-peer with organisations, disrupting the status quo of online transactions.”
I should not have to give all of my passport details to someone who may only require my date of birth. SSI allows me to control my digital identity and verify who I am in a secure way.
If this all sounds to conceptual vs real world, you can find real value being created with the utility tokens connected to some of these projects.
DLT is real for sure…to be continued