In recent weeks, bitcoin has shown steady growth. Following it, the value of other cryptocurrencies has also increased. We dive into the trendy topic of decentralized finance. We talk about the benefits of DeFi and their risks, as well as well-known DeFi projects.
Decentralized finance is an economic system whose purpose is to create an open, accessible, and transparent ecosystem of financial services that operates independently of government. Simply put, these are financial systems based on blockchain technology. The goal of DeFi (decentralized finance) is to develop a quality alternative to the traditional banking system using decentralized technologies.
Even though Bitcoin was the first cryptocurrency, it is the Ethereum ecosystem that offers the largest number of DeFi opportunities. Perhaps the reason for this is that the ETH blockchain was originally developed not as the “second cryptocurrency of the world”, but as a platform for startups, ICOs and smart contracts. Thus, Ethereum? Smart Ether: we understand that Ethereum can be considered the first DeFi project. It was he who made the possibility of investing through ICO open to anyone, as well as decentralized finance in general.
The number of new platforms related to decentralized finance continues to grow – so what makes them so popular?
DeFi: the blockchain-based decentralized finance approach
Bitcoin, DeFi and the cryptocurrency market: current state
In the spring, the crypto market experienced a strong fall after the classic market due to the coronavirus crisis. In the new season, it began to slowly recover. Altcoins, which have at least some relations to crypto, and not to centralized currencies, directly depend on BTC, following it, grow or fall in price. The top alts include Ethereum ETH and Binance BNB because they are in the cryptocurrency business ecosystem.
The reason for the overall market growth we are seeing now is the hype of DeFi (decentralized finance). It has shown itself as a powerful financial instrument and attracted investors’ attention to cryptocurrencies. Many community members call DeFi an experiment, a soap bubble. But this does not prevent it from growing hundreds of times – from millions to billions of dollars.
Investors who invested in high-risk DeFi and multiplied their capital redirect part of their assets into a more stable financial instrument – bitcoin. The massiveness of this phenomenon gives an increase in the value of BTC and, accordingly, altcoins.
The logic of events resembles the scenario of 2017. Then the “bitcoin” was going up on the wave of popularity of ICO projects. As you know, it all ended with many scams. Many projects never went into production, and their founders simply disappeared with investors’ money.
DeFi is a similar financial instrument now. Big players do not dare to invest in it yet. Only small investors with private capital come in.
Decentralized Finance: What is its role on the road to financial liberation?
How does decentralized finance work?
Bitcoin is a digital money system, like any other cryptocurrency. In this case, the composition of decentralized finance includes those tools that help manage these finances. Thus, DeFi are those tools that in a certain way act as intermediaries between the user and digital finance. They remove traditional intermediaries in the form of banks from the equation and make it possible to use many other services automatically.
DeFi services are based on decentralized applications and protocols. At the same time, these applications can interact with each other and be used together. In the blockchain, they form a peer-to-peer network. According to an employee of the blockchain center in Frankfurt, Ethereum is still the leader in the popularity of networks in which DeFi operates. EOS is in second place, and TRON is in third.
The main “fuel” for DeFi is ETH (Ethereum) and DAI tokens. Ether is needed to pay commissions in the blockchain, this cryptocurrency is the easiest to convert into other currencies. DAI is a type of stablecoin. It is fully decentralized and pegged to the US dollar, which makes it less volatile.
DeFi: Decentralized finance ready to change the rules of the game?
What the DeFi market expects
If the DeFi market shows that it can be trusted, as well as after the Ethereum 2.0 update, the value of bitcoins and key alts will inevitably increase several times. Large investors will see on the example of DeFi that there is a digital decentralized market for financial assets. And they will redirect part of their funds to cryptocurrency. If DeFi behaves like a pyramid scheme, the crypto market will fall.
From my point of view, the reliability of DeFi is questionable. One of its problems is the jurisdictions of countries that will confirm the assets that have left this market. So far, there is no such practice. But it may appear soon. The US is already working on it.
The second problem is that today the same models are used to fill the DeFi market as with the growing popularity of ICOs. If they turn out to be pyramid schemes, we will lose the DeFi market.
Forecast of the value of the top 3 cryptocurrencies
Bitcoin reacts very actively to the jumps of such aggressive financial instruments as DeFi. If it goes down, we will see bitcoin at $5000-6000. Investors with losses in DeFi will begin to withdraw their assets from BTC.
If the growth of the decentralized finance market continues at least until the end of the year, we will probably get BTC worth $20,000. Today it is $11,700.
BTC has grown from $3000 in just a few months. Confidence in it has multiplied because of DeFi. The forecast of bitcoin value for the coming weeks is slight fluctuations around $1000 and systematic growth.
BNB is an algorithmic token. It is one of the leading cryptocurrencies in the framework of exchange trading. It does not have the status of a serious fintech tool. BNB is supported by the Binance exchange network, which invests a lot of resources in its marketing. The motivation to buy is participation in launchpads, access to staking, getting a good interest and dividends.
I believe that we will not see BNB worth $50 soon. Its price is about $25, if there is no fall of bitcoin. Now, it is equal to $22.
Ethereum is hype on the eve of the launch of version 2.0. With it should come a solution to most of the problems of the technology present in the first version. The migration will begin in the fall. Now, ETH is experiencing growth due to its own update, as well as the development of DeFi. Its current value is $392. My forecast for the fall is about $400-500 if the decentralized finance market grows. And in the region of $150-200 for its fall.
DEFI: The path to decentralized finance under blockchain technology
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